Property Tax Disputes: More than a Matter Valuation

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1 Property Tax Disputes: More than a Matter Valuation Speakers: Ong Sim Ho, Counsel 16 Mar ONG SIM HO Advocates & Solicitors 1

2 Takeaway Practical Insights Valuation / Law: the interface Forward implication: embedding the legal appeal Representation at VRB: the Matrix Professional liabilities 2016 ONG SIM HO Advocates & Solicitors 2

3 Agenda The legal framework Very Briefly, Vote to by-pass? The VRB appeal process Valuation / Law Interface Case Studies Tribunal advocacy Uniqueness Expressing valuation in law Beyond direct property tax law 2016 ONG SIM HO Advocates & Solicitors 3

4 Agenda. Representation at VRB Valuers / Counsel Matrix 2016 ONG SIM HO Advocates & Solicitors 4

5 The Legal Framework The Charging Section section 6(1) a property tax shall be payable for each year upon the annual value of all houses, buildings, lands and tenements whatsoever included in the Valuation List and amended from time to time in accordance with the provisions of this Act ONG SIM HO Advocates & Solicitors 5

6 The Legal Framework Property tax is a tax on property; it is not a tax on the owner of the property Property tax is payable by the owner of the property (section 6(2)) Section 2(1) - owner means the person for the time being receiving the rent of any premises whether on his own account or as agent or trustee for any other person or as receiver or who would receive the same if the premises were let to a tenant and includes the person whose name is entered in the Valuation List 2016 ONG SIM HO Advocates & Solicitors 6

7 Annual Value Annual value is defined in section 2(1): annual value (a) in relation to a house or building or land or tenement, not being a wharf, pier, jetty or landingstage, means the gross amount at which the same can reasonably be expected to be let from year to year, the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes (other than goods and services tax); and (b) in relation to a wharf, pier, jetty or landing-stage, means the gross amount at which the same can reasonably be expected to be let from year to year, the tenant paying the expenses of repair, insurance, maintenance or upkeep; 2016 ONG SIM HO Advocates & Solicitors 7

8 Principles of Assessment Independent Assessment Hypothetical Tenancy Rebus Sic Stantibus 2016 ONG SIM HO Advocates & Solicitors 8

9 Principles of Assessment Independent Assessment Property to be assessed independently Chief Assessor s independent assessment of a property cannot be struck down if the only reason is that other similarly placed properties are incorrectly assessed at lower annual values 2016 ONG SIM HO Advocates & Solicitors 9

10 Principles of Assessment Hypothetical Tenancy The definition of annual value, requires the determination of rental levels that can reasonably be expected, and thus imports the concept of the hypothetical tenancy Lord Denning MR in R v Paddington (VO), ex parte Peachy Corp Ltd [1966] (adopted in Singapore in Chief Assessor v National Shipbreakers Pte Ltd [ ]) : It is the rent which an imaginary tenant might be reasonably expected to pay to an imaginary landlord for a tenancy of this dwelling in this locality, on the hypothesis that both are reasonable people, the landlord not being extortionate, the tenant not being under pressure, the dwelling being vacant and to let the period not too short nor yet too long, simply from year to year ONG SIM HO Advocates & Solicitors 10

11 Principles of Assessment Hypothetical Tenancy Assumption that property is vacant and to let vacant in the physical sense and in the sense that the existing business has ended and any process machinery has been removed Fir Mill Ltd v Royton Urban District Council and Jones (VO) (1960) Discount accidental factors To encourage uniformity in valuation On basis that landlord pays the expenses of repair, insurance, maintenance and property tax Common measure upon which estimated gross annual rent may be determined 2016 ONG SIM HO Advocates & Solicitors 11

12 Principles of Assessment Rebus sic Stantibus Literally as things stand Allows for the actual conditions of the property to be considered when valuation of the property is made. Requires consideration of all advantages and disadvantages, legal or otherwise, attaching to the premises which would affect the mind of the hypothetical tenant 2016 ONG SIM HO Advocates & Solicitors 12

13 Principles of Assessment Rebus sic Stantibus Common law principle of valuation derived from the British rating system It must always be the actual house or other property for the occupation of which the occupier is to be rated and it is to be valued as it in fact is rebus sic stantibus, and not by reference to its value if structurally altered or put to some different mode of use. Accepted in Singapore CA case of Chief Assessor v Howe Yoon Chong [1984] Rebus sic stantibus principle is a fundamental principle in valuation that a property Property must be valued as it in fact stands 2016 ONG SIM HO Advocates & Solicitors 13

14 Principles of Assessment Rebus sic Stantibus 2 aspects: (1) The physical nature and condition of the property (2) The use of the property 2016 ONG SIM HO Advocates & Solicitors 14

15 Methods of Valuation Comparable rental method Contractor s test Profit s method Statutory formulae 2016 ONG SIM HO Advocates & Solicitors 15

16 Method of Valuation Comparable rental method Used as far as possible Looks at comparable rents of similar properties Independently concluded rents in market are the best evidence of value Diethelm & Co Ltd v Chief Assessor [1969] Question of fact as to what are comparable properties Adjustments may need to be made to bring it within the statutory terms 2016 ONG SIM HO Advocates & Solicitors 16

17 Method of Valuation Contractor s test Generally where property is of a kind which is rarely let A test in some cases and not in others Where a place is occupied by a tenant, it is not a good test at all because actual rent is a far better guide 2016 ONG SIM HO Advocates & Solicitors 17

18 Method of Valuation Contractor s test Classic explanation from Dawkins (VO) v Royal Leamington Spa Corporation and Warwickshire County Council (1961) As I understand it, the argument is that the hypothetical tenant has an alternative to leasing the hereditament and paying rent for it; he can build a precisely similar building himself. He could borrow the money on which he would have to pay interest; or use his own capital on which he would have to forego interest to put up a similar building for his owner-occupation rather than rent it, and he will do that rather than pay what he would regard as an excessive rent that is, a rent which is greater than the interest he foregoes by using his own capital to build the building himself. The argument is that he will therefore be unwilling to pay more as an annual rent for the hereditament than it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament. On the other hand, if the annual rent demanded is fixed marginally below what it would cost him in the way of annual interest on the capital sum necessary to build a similar hereditament, it will be in his interest to rent the hereditament rather than build it ONG SIM HO Advocates & Solicitors 18

19 Simplified Hypothetical Tenant Cost of Building the premises Capital expenditures Interest / opportunity costs Assumption: marginal equilibrium indicates annual value 2016 ONG SIM HO Advocates & Solicitors 19

20 Method of Valuation Profits Method Looks at gross receipts Determines what the operator is willing to pay as rent for the premises in which the business is operated Very subjective: divisible balance between tenant and landlord 2016 ONG SIM HO Advocates & Solicitors 20

21 Objection to Assessment Owner may object to annual value in Valuation List in any year at any time in that year (section 20A(1)) Where an amendment is made to the Valuation List, the owner may object to such amendment within 30 days of the service of notice (section 20A(2)) 2016 ONG SIM HO Advocates & Solicitors 21

22 Appeals to the VRB Usually relates to disputes on Annual Value Owner may appeal to the Valuation Review Board ( VRB ) against decision of the Chief Assessor 2016 ONG SIM HO Advocates & Solicitors 22

23 Appeals to the VRB Within 30 days after service of written notice of decision of Chief Assessor or Comptroller (section 20A(7)) Notice of Appeal (section 29) Prescribed form State all grounds of appeal, amendments desired and whether appellant to appear in person or be represented by his authorised representative. Separate notices to be filed for appeals against each notice from Chief Assessor or Comptroller of Property Tax 2016 ONG SIM HO Advocates & Solicitors 23

24 Appeals to the VRB Valuation Review Board (Appeals Procedure) Regulations Regulation 5(2) - VRB may require owner to submit and furnish a statement setting out the contentions or particulars of any facts which the appellant intends to rely on during the hearing of the appeal, including particulars of comparable rents or sales (Appellant s Statement) Regulation 5(3) Owner shall only be permitted to rely on contentions and facts set out in statement Regulation 5(4) - Chief Assessor or Comptroller may be required by the VRB to submit a response to statement (Respondent s Statement) 2016 ONG SIM HO Advocates & Solicitors 24

25 Appeals to the VRB New procedures as of 1 July 2015 To facilitate expeditious disposal of appeals File Appellant s Statement within 2 months of lodging Notice of Appeal File Respondent s Statement within 2 months of receiving Appellant s Statement Up to 3 pre-hearing conferences ( PHC ) may be convened as necessary First PHC to be convened within 2 months of filing of Respondent s Statement to ascertain positions of parties Further 2 PHCs to allow parties to attempt a resolution of the appeal 2016 ONG SIM HO Advocates & Solicitors 25

26 Appeals to the VRB File: Notice of Decision by Chief Assessor Lodge Notice of of Appeal (s 20A) File Appellant s Statement File Respondent s Statement 1 st Pre-Hearing Conference (PHC) 2 nd PHC 3 rd PHC - Affidavits of evidence in chief within 2 months of 3 rd PHC - Submissions & Bundle of Authorities within 3 months of 3 rd PHC - Reply Submissions within 1 month of receipt of other party s Submissions 4 th PHC Hearing 30 days 2 months 2 months 2 months Approx. 6 months Approx. 4 5 months 1 month To fix hearing dates Complete within months 2016 ONG SIM HO Advocates & Solicitors 26

27 Appeals to the VRB Notice of Appeal - Prescribed form Within 30 days after service of written notice of decision of Chief Assessor or Comptroller State all grounds of appeal, amendments desired and whether appellant to appear in person or be represented by his authorised representative ONG SIM HO Advocates & Solicitors 27

28 Appeals to the VRB New procedures Filing of Appellant s Statement and Respondent s Statement Up to 3 PHC within strict timeline To facilitate expeditious disposal of appeals Allow for parties to have all the information 2016 ONG SIM HO Advocates & Solicitors 28

29 Appeal to the Valuation Review Board File: Notice of Decision by Chief Assessor Lodge Notice of of Appeal (s 20A) File Appellant s Statement File Respondent s Statement 1 st Pre-Hearing Conference (PHC) 2 nd PHC 3 rd PHC - Affidavits of evidence in chief within 2 months of 3 rd PHC - Submissions & Bundle of Authorities within 3 months of 3 rd PHC - Reply Submissions within 1 month of receipt of other party s Submissions 4 th PHC Hearing 30 days 2 months 2 months 2 3 months Approx. 6 months Approx. 4 5 months 1 month Appellant s Statement: - signed by Appellant or authorised representative - set out all contentions and facts to be relied on during hearing Notice of Appeal must state: - all grounds of appeal - the amendments desired - whether the appellant wishes to appear before the Board personally or by his authorised representative - address to which communications may be sent To ascertain positions of parties and subject to the specific circumstances of the case, grant parties an adjournment of 3 months to attempt a resolution of the appeal To further ascertain the positions of the parties and discuss the issues in the case to facilitate a resolution of the appeal and subject to the specific circumstances of the case, grant parties an adjournment of 3 months to attempt a resolution of the appeal Where it appears that the appeal cannot be resolved without a hearing, directions will be given for the filing of submissions, affidavits etc. To fix hearing dates Complete within months 2016 ONG SIM HO Advocates & Solicitors 29

30 Valuation / Law Interface - Tribunal Advocacy Board composition Implications for advocacy approach Balance technical and equity More like a campaign: adjusting focus Case example: Oxley Light case Mr Ong, the law is against you but taking all the circumstances, the appeal is allowed ONG SIM HO Advocates & Solicitors 30

31 Interface Expressing valuation in law Most cases present as a pure valuation issue. On finer analysis, very few cases are such. For example, if the point is that the comparable rental evidence is inadequate, how would we express this as a legal point? This is where facts and crossexamination will yield dividend ONG SIM HO Advocates & Solicitors 31

32 Expressing in law Example: should AV include costs of renovation and fixtures put in by tenants? Several possible ways to frame the legal issues Where there is a profit rent element, how could we frame that in legal terms? 2016 ONG SIM HO Advocates & Solicitors 32

33 Expressing in law An often ignored issue is the need to embed the legal case theory for further appeals to the High Court and Court of Appeal. Question of law vs fact For an important matter which may go all the way to the Court of Appeal there is also a need to consider legal development issues: eg Pan United Shipyard case ONG SIM HO Advocates & Solicitors 33

34 Beyond direct property tax law Sometime the resolution of the tax issue depends on other substantive legal issue: Nature of the things to be assessed: is it land, or property? Manner by which CA made his decision may be more properly challenged by a judicial review ONG SIM HO Advocates & Solicitors 34

35 Representation at VRB Options: Valuer as advocate Counsel as advocate Counsel as advocate + valuer as expert Counsel as advocate assisted by valuer There is no best option tailor to the landscape of the case ONG SIM HO Advocates & Solicitors 35

36 Representation at VRB Factors to consider: Is the valuation expertise better employed in advocacy vs expert evidence? Skills, temperament, reputation. Need for forensic advocacy (e.g cross examination, exclusion of evidence) Credibility of valuation evidence when advocated vs when opined on the stand ONG SIM HO Advocates & Solicitors 36

37 Representation at VRB The Nightmare scenario: In an actual case, a Valuer represented the client in a pure valuation dispute. Main issue is valuation of a specialised commercial property. Valuer pressed CA to reveal land sale reserve value for a comparable site. VRB had no power to compel CA, as she was acting as Chief Valuer to the State in respect of reserve land value. The real issue, in my opinion was wrongly framed. VRB ruled that The appeal is allowed. Proposed AV is vacated. Chief Assessor s method upheld!!! VRB subsequently ruled that the matter is closed and refused to hear the matter further ONG SIM HO Advocates & Solicitors 37

38 Professional liability In view of recent stringent requirement to file the Appellant Statement, advisors (both valuers and counsel) must take care to consider all possible legal grounds for appeal. The points made earlier about expressing a valuation objection in the proper legal terms are important here. This does not always mean that a lawyer has to conduct the case. But it would be prudent in a more complicated case to at least seek a legal review of the Appellant Statements ONG SIM HO Advocates & Solicitors 38

39 Questions & Answers Session 2016 ONG SIM HO Advocates & Solicitors 39

40 Upcoming MasterClasses DATE Mar 24, 2016 (Thur) TIME 2-5pm This seminar focus on dawn raids by the revenue authority and address - The power to gain entry to premises without notice - Legal obligations of taxpayers; and - The revenue authority s powers of search and seizure in a dawn raid. VENUE SMU Seminar Room 4.1 School of Economics ONG SIM HO Advocates & Solicitors 40

41 Thank You ONG SIM HO Advocates & Solicitors 1 Coleman St, #05-15, The Adelphi, Singapore T E info@ongsimho.com ONG SIM HO Advocates & Solicitors 41