Saskatchewan Municipal Board Assessment Appeals Committee

Transcription

1 Saskatchewan Municipal Board Assessment Appeals Committee Appeal: 0157/2005 RESPONDENT: City of Yorkton In the matter of an appeal to the Assessment Appeals Committee, Saskatchewan Municipal Board, by: Saputo Foods Ltd. c/o Grace Muzyka Brunsdon Martin Appraisals # Broadway Avenue Saskatoon, Saskatchewan S7N 1A9 respecting the assessment of: for the year 2005; Lot 9, Block 9, Plan 00Y York Road West Roll Number: BEFORE: APPEARED FOR THE APPELLANT: APPEARED FOR THE RESPONDENT: APPEARED FOR THE SASKATCHEWAN ASSESSMENT MANAGEMENT AGENCY: Wade Armstrong, Chairman David Wilkin, Member Ron Pilipow, Member Sandra Sylvester, Acting Secretary Grace Muzyka Kim Durdin Sheldon Stechyshyn, May Chiu This appeal was heard in Room 3, 3 rd Floor, Broadcast Place, 120 Smith Street East, in Yorkton, Saskatchewan, on November 15, 2005.

2 APPEAL 0157/2005 [Page 2] This appeal is against the decision of the Board of Revision (the Board) for the City of Yorkton, pursuant to section 216 of The Cities Act (the Act). ISSUES: Did the Board err in sustaining the assessment and dismissing the appeal by finding that: (i) (ii) An environmental contamination adjustment was unwarranted? A further abnormal functional obsolescence adjustment was unwarranted? FACTS: [1] The subject property is located at Lot 9, Block 9, Plan 00Y00664, and civically identified as 41 York Road West, in Yorkton, Saskatchewan. [2] The subject property is an acre parcel improved with a 37,500 square foot reinforced concrete frame creamery built in The majority of the subject wall heights are 20 feet with the exterior wall finish consisting of tilt-up concrete panels. The majority of the subject building sits on a 30,720 square foot utility basement. Other improvements include 5,368 square feet of office finish, 3,684 square feet of interior partitions, five vertical fuel tanks, three horizontal fuel tanks and one stainless steel tank. [3] The fair value appealed to the Board was $2,017,400 (land $278,100 and building $1,739,300). The fair value appealed to the Committee is $1,810,800 (land $278,100 and building $1,532,700). As a commercial property, the assessed value is 100% of the fair value. [4] The grounds of appeal to the Board were: The subject s fair value is too high because 1) there are errors in the assessor s replacement cost new estimate, 2) there is abnormal functional obsolescence in the building that is not presently being recognized in the calculation of fair value, and 3) there is environmental contamination in the building that is not presently being recognized in the calculation of fair value. [5] The record of the Board includes: a) Notice of appeal, dated April 15, 2005;

3 APPEAL 0157/2005 [Page 3] b) April 1, 2005 authorization to review assessment signed by Pierre Goudreau on behalf of Group Axival Inc.; c) Assessment report to the Board signed by Jackie Currah on June 13, 2005 with Appendices A, B and C; d) Fax dated June 14, 2005 from Brunsdon, Martin Appraisals to the Board requesting addition of the attached Golder Associates Ltd. Revised Site Remediation letter dated February 7, 2005; e) Fax dated June 14, 2005 from Brunsdon, Martin Appraisals to the Board requesting addition of the attached Colliers International letter dated June 6, 2005; f) Appellant's written submission to the Board signed by Grace Muzyka on June 3, 2005 with addenda pages 1 through 25, inclusive, along with Committee Decision for Appeal 0385/2001 and the Board s notice of hearing dated May 18, 2005; and, g) The decision of the Board, dated June 28 th, [6] The decision of the Board reads in part: After due consideration the Board of Revision ruled to accept the recommendation from the Saskatchewan Assessment Management Agency. [7] The Board s decision reflects the removal of three tanks and the adjustment of the condition rating from average to below average for all building sections other than a 24 x 20 foot, 1973 built warehouse. The appeal issues relating to the application of an abnormal functional obsolescence and an environmental contamination adjustment on the improvements was dismissed by the Board. [8] The grounds of appeal to the Committee in part are: The Board erred when it sustained the assessment and dismissed the appeal on the basis that: 1) an environmental contamination adjustment is not warranted in the calculation of the subject s land fair value.... 2) the evidence presented did not clearly indicate if the application of an abnormal obsolescence was required and if so what was the applicable adjustment amount The notice of appeal to the Committee was dated August 2, 2005 and was received on August 5, [9] The Committee received a written submission from the appellant.

4 APPEAL 0157/2005 [Page 4] LEGISLATION: The Cities Act: 165(2) All property is to be assessed at its fair value as of the applicable base date. (3) The dominant and controlling factor in the assessment of property is equity. (4) The value at which any property is assessed is to bear a fair and just proportion to the value at which all similar property is assessed: (a) in the city; and (b) in any school division situated wholly or partly in the city or in which the city is wholly or partly situated. (5) In determining the value of any property, the assessor shall take into consideration and be guided by: (a) any applicable formula, rule or principle set out in the assessment manual; and (b) any facts, conditions and circumstances of the property that may affect its value. (6) For the purposes of subsection (5), the assessment shall reflect all the facts, conditions and circumstances of the property on January 1 of each year as if they had existed on the applicable base date. 170(1) In determining the value of property, none of the assessor, the board of revision or the appeal board shall use or take into consideration any valuation technique or method of appraisal based on income or benefits unless the formulas, rules and principles respecting that valuation technique or method of appraisal are set out in the assessment manual. (2) For the purposes of subsection (1), the assessor, the board of revision or the appeal board shall only use or take into consideration a valuation technique or method of appraisal based on income or benefits in the manner permitted by and set out in the assessment manual. 210(3) Notwithstanding that the value at which any property has been assessed appears to be more or less than its fair value, the amount of the assessment may not be varied on appeal if the value at which it is assessed bears a fair and just proportion to the value at which all similar property is assessed: (a) in the city; and (b) in any school division situated wholly or partly in the city or in which the city is wholly or partly situated.

5 APPEAL 0157/2005 [Page 5] 216 Subject to subsection 196(5), any party to an appeal before a board of revision has a right of appeal to the appeal board: (a) respecting a decision of a board of revision; and (b) against the omission, neglect or refusal of a board of revision to hear or decide an appeal. 223(1) The appeal board shall not allow new evidence to be called on appeal unless it is satisfied that: (a) through no fault of the person seeking to call the new evidence, the written materials and transcript mentioned in section 220 are incomplete, unclear or do not exist; (b) the board of revision has omitted, neglected or refused to make a decision; or (c) the person seeking to call the new evidence has established that relevant information has come to the person s attention and that the information was not obtainable or discoverable by the person through the exercise of due diligence at the time of the board of revision hearing. 226(1) After hearing an appeal, the appeal board may: (a) confirm the decision of the board of revision; or (b) modify the decision of the board of revision in order that: (i) errors in and omissions from the assessment roll may be corrected; and (ii) an accurate, fair and equitable assessment for the land or improvements may be placed on the assessment roll. THE SASKATCHEWAN ASSESSMENT MANUAL (THE MANUAL): Volume 1, Chapter 1, Document Number 1.5.1, pages 1, 2 and 3, Environmental Contamination (Date: 03/01/22) Volume 1, Chapter 4, Document Number , pages 1 and 2, Functional Obsolescence (Date: 03/01/22) CONCLUSIONS AND REASONS: This Committee has received an appeal against a decision of the City of Yorkton Board of Revision, and on the basis of the presentations of the appellant and respondent, must decide if the record shows that an error has occurred. The role of the Committee is not to redo the hearing. Rather, the Committee is to review the evidence from that hearing and determine whether the Board came to the proper conclusion in rendering its decision. Should the Committee conclude that

6 APPEAL 0157/2005 [Page 6] the Board did not come to the proper conclusion based upon the evidence before it, the Committee is then required to do what the Board ought to have done. The onus is upon the appellant to demonstrate to the Committee where the Board has erred. Environmental Contamination The appellant submitted that the environmental investigations that have been completed for the subject site have identified that the subject soil and groundwater has been impacted by hydrocarbon deposits which have leaked from two underground storage tanks. Specifically, the February 7, 2005 Revised Site Remediation letter from Golder Associates identified an estimated 4,250 cubic meters of hydrocarbon impacted soils existing on the subject site. It was estimated that the cost to remove the underground storage tanks at the site, remediate the site to Saskatchewan Environment s 2003 commercial criteria and decommission the water well would cost approximately $206,900. This report further identified an additional cost for replacement of asphalt over the excavation area of $40,000 and also noted that should Saskatchewan Environment adopt the current CCME criteria with respect to BTEX levels prior to approval of the above subject remedial program, an additional 1,700 cubic meters of soil would require excavation at an additional cost of $70,000. The representative from the Saskatchewan Assessment Management Agency (SAMA) advised the Board that the above engineering firm was contacted in order to ensure that the Revised Site Remediation letter submitted by the appellant met the Phase III environmental site assessment requirement identified in the Manual. SAMA further advised that as a result of this investigation it was confirmed that the submitted costs did in fact meet the requirements identified on page 1 of Document Number of the Manual. SAMA submitted that it would be inappropriate to adjust for the $40,000 identified to replace the asphalt as asphalt paving is not an assessable item. Further, SAMA argued that the potential change resulting from Saskatchewan Environment adopting the current CCME criteria would not be a consideration through this appeal as it was not a fact in place, as of the roll date. As a result, SAMA argued that it would be inappropriate to adjust the 2005 fair value to reflect the additional $70,000 in potential remediation work associated with the removal of the additional soil. SAMA further argued that as all costs identified within the Manual have been adjusted to reflect the June 30, 2002 base date, it may well be inappropriate to use a 2005 cost-to-cure estimate. Both parties were in agreement that the presence of the environmental contamination was not a contributing factor to the closing of the subject s creamery operation. In fact, the appellant submitted that when the initial decision to close the creamery operation was made, an environmental study had not been completed.

7 APPEAL 0157/2005 [Page 7] In Volume 1, Document Number of the Manual at pages 1, 2 and 3 the procedures for application of an environmental contamination adjustment is stated as follows: Application The environmental contamination adjustment accounts for the loss in value to the property due to the presence of a physical environmental contaminant. An environmental contamination adjustment shall be applied where a contaminated property risk assessment report, also referred to as a Remedial Investigation or Phase III environmental site assessment, including an estimated costto-cure the contamination has been prepared by an engineer certified with the Association of Professional Engineers and GeoScientists of Saskatchewan. Formulas, Rules and Principles Land...Where there are insufficient vacant land sales in the neighbourhood and comparable neighbourhoods to establish a reliable environmental contamination adjustment factor, the adjustment shall be determined by the cost-to-cure method. Buildings and Structures...Where there are insufficient improved property sales for comparable buildings or structures with a similar physical environmental contamination, the environmental contamination adjustment shall be determined by application of the costto-cure method. Cost-to-Cure Method Used for current use Where: contamination still exists on the property; and the presence of the contamination does not prohibit the property from being used for the use to which it was put prior to the identification of the contamination; the environmental contamination adjustment shall be 10 percent of the lowest cost option for the cost-to-cure, referred to in the contaminated property risk assessment report. The maximum adjustment shall be 10 percent of the fair value of the property as if it were uncontaminated. Application of the environmental contamination adjustment The following procedures are to be used for properties not valued using the Residential Sales Comparison Method. Land Determine the environmental contamination adjustment applicable to land by the following cost-to-cure calculation procedure:

8 APPEAL 0157/2005 [Page 8] 1. Determine the fair value of the land without an environmental contamination adjustment. 2. Determine the environmental contamination adjustment for the property. 3. Determine the environmental contamination adjustment for the land by subtracting the applicable environmental contamination adjustment, up to the maximum percentage permitted for the property, from the fair value of the land without an environmental contamination adjustment. The Committee finds that the Board erred in deciding this portion of the subject appeal. All parties to this appeal agree that the Golder Associates Revised Site Remediation letter of February 7, 2005 as submitted by the appellant to the Board was in fact a property risk assessment report. The Manual is clear in directing that an environmental contamination adjustment must be applied in those instances where a property risk assessment report has been prepared and submitted which identifies an estimated cost-to-cure the contamination. Based upon the evidence and arguments submitted, the Committee must agree with SAMA s position as it relates to the cost estimates provided for both the asphalt paving and the possible changes to Saskatchewan Environment s contamination criteria. Firstly, asphalt paving is not an assessable improvement and as such a cost associated with its placement should not be included in any adjustment calculation. Secondly, the Committee believes that the current year assessment is intended to reflect known facts as of the date that the assessment roll was established and as a result believes that it would be inappropriate for any party to attempt to reflect potential or possible changes that might occur after this date. Further, section 189(1) of the Act provides SAMA with an avenue for application of such an adjustment to an assessment within the current year, assuming it is warranted. The Committee does not accept SAMA s position as it relates to a requirement that the cost-to-cure estimate provided in the property risk assessment report be effective as of the June 30, 2002 base date. The Committee believes that had the drafters of the Manual intended that this report be effective as of the base date, it would have been a simple matter to have this requirement noted within the identified formulas, rules and principles. The Committee finds that an environmental contamination adjustment of $20,690 is warranted and should be subtracted from the subject s land value resulting in a revised fair value for the subject land of $257,430. This adjustment has been calculated pursuant to the Cost-to-Cure Method - Used for current use approach from the above noted document (10% of $206,900).

9 APPEAL 0157/2005 [Page 9] Abnormal Functional Obsolescence According to the appellant, the creamery and auto specialty portions of the subject building had been constructed in 1973 and consisted of a reinforced concrete frame with a full basement beneath. The appellant submitted that the subject is the only warehouse building in Yorkton that is constructed with this type of frame (type 2) and is also the only warehouse building in the city that has a full concrete basement beneath it. At page 11 of her submission, the appellant provided a detailed Assessment Comparison Table identifying the eight largest warehouse buildings in Yorkton and clearly identified that all were constructed of lesser cost frames than the above noted type 2 portions of the subject improvements (masonry 2, steel 41/2, wood 11/2). Further, at Addenda pages 13 and 14 of the appellant s submission, photographs of each of the identified comparable buildings were also provided. The appellant submitted that SAMA has currently recognized some abnormal functional obsolescence inherent in this building through the application of a factor of 24 to 30% (dependent upon the building section). It was noted that this factor was developed based upon the cost difference between the applied 404 (creamery) cost code and a substitute cost reflecting the subject s likely use as a 401 (warehouse) cost code. It was the appellant s position that this factor, while appropriate, failed to recognize additional abnormal functional obsolescence affecting the building due to its construction type and full basement. Additionally, the appellant argued that the 50 x 50 foot creamery section that was originally constructed in 1973 with 60 foot wall heights in order to house various vertical tanks required for the operation of the creamery was likewise functionally obsolete in terms of this local market. Again, as support for her position, reference was made to the Assessment Comparison Chart which identified that most of the comparable buildings have wall heights in the 18 to 22 foot range with the largest wall height being that identified for a portion of the Harvest Meats warehouse with a wall height of 30 feet. In summarizing her position the appellant stated that for assessment purposes these three features add to the costing of these improvements but add no further utility to this warehouse in terms of the Yorkton market. According to the appellant this is the exact situation contemplated by the Manual in Document Number where it states the following: Functional obsolescence is caused by changes in demand, design, and technology which result in a loss in the utility of the building or structure. (Emphasis added) The appellant further argued that the replacement cost method identified in this document should be employed to calculate an abnormal functional obsolescence factor based upon a substitute building without the abnormal obsolescence. The model proposed for use by the appellant was a comparable masonry warehouse (type 3) with no basement and a 20 foot wall height.

10 APPEAL 0157/2005 [Page 10] According to SAMA, the appellant may well have been unclear in her submissions to the Board in identifying exactly what adjustments were being requested. SAMA further stated that he was uncertain as to whether the appellant s recommended substitute building was proper or not. This uncertainty resulted from the historic application of an abnormal functional obsolescence factor which had been developed under prior years assessments to reflect the cost difference between a 404 creamery and a 401 warehouse. SAMA submitted that some of the obsolescence now being requested by the appellant may have already been calculated and applied to the subject improvements. Further, as noted in SAMA s submission to the Board, the prior year s change in the quality classification for the subject building from A to B may likewise be capturing some of the loss in utility that is now being argued exists in these improvements. SAMA further submitted that with the condition rating change recommended to and accepted by the Board in rendering its decision for this appeal, a further reduction was being provided which resulted in a total reduction being applied to this building from the replacement cost new less depreciation (RCNLD) of approximately 52%. According to SAMA, this large amount of reduction may well have given appropriate consideration to the abnormal functional obsolescence now being requested. SAMA further argued that as the abnormal obsolescence for the 60 foot section was at 30% whereas the main 20 foot building was receiving an abnormal obsolescence of 24%, the abnormal obsolescence relating to the excess wall heights may likewise, have already been considered in the calculation of the subject s fair value. When questioned by the Committee on the makeup of the sales that were included in the analysis developed to determine the market adjustment factor (MAF) applied to the subject improvements of 0.70, SAMA advised that this sales grouping consists of post 1971 commercial property sales from within Yorkton. SAMA further advised that there were no sales of type 2 buildings included within this sales grouping and while the retail or warehouse sales within the sales grouping would not have included basements the office building sales likely would have. As identified at page 14 of the decision, the Board decided the following as it relates specifically to the appellant s submission that additional abnormal functional obsolescence should appropriately be applied to the subject:... as well as document of the Saskatchewan Assessment Manual to determine if the subject property does suffer from large amounts of abnormal functional obsolescence. The Board was of the opinion the evidence presented did not clearly indicate if the application of an abnormal obsolescence was required, and if so what was the applicable adjustment amount. The Board recognizes the subject property was designed and utilized as a creamery until the processing operation ceased, at which time it was used as a warehouse for dry product until it was eventually vacated. In considering the above, the Committee finds that Document Number of the Manual is clear in stating the following:

11 APPEAL 0157/2005 [Page 11] Abnormal functional obsolescence is any functional obsolescence not accounted for in the replacement cost new less physical deterioration or market adjustment factor. (Emphasis added) By definition, replacement cost is the cost used to replicate the utility inherent in a specific building. The appellant submitted undisputed evidence to the Board identifying firstly, that the subject is the only type 2 warehouse in Yorkton and any future use to be made of the subject improvements could likewise occur in a type 3 warehouse. Secondly, no other warehouse in Yorkton has 60 foot wall heights and again, there is no evidence to support a conclusion that a use will ever be made of this section s excessive wall height in the future. Finally, the appellant argued that no other warehouse in Yorkton has a full basement. It should be noted that the confirmation by SAMA that the sales used to develop the applied MAF do not reflect the superadequacies relating to the type 2 construction or the excessive wall height as identified by the appellant is also a key component of this issue. The above definition is clear in stating that abnormal functional obsolescence is that functional obsolescence not accounted for in the MAF. As indicated in the above definition, if the above superadequacies are not reflected within the sales sample used to derive a MAF, further consideration is then required. The appellant also argued before the Board that the costs associated with these superadequacies do not contribute to the utility offered by the subject building in this market. As a result, if the subject s actual building attributes (reproduction costs) are to continue to be used in the costing of the subject improvements, Document Number of the Manual clearly requires that adjustments be made pursuant to the following calculation procedure: Replacement Cost Method The amount of obsolescence shall be determined from the replacement cost of a substitute building or structure. The amount of abnormal functional obsolescence shall be determined by application of the following calculation procedure: 1. Determine the replacement cost new less physical deterioration of the building or structure with the abnormal functional obsolescence. 2. Determine the replacement cost new less physical deterioration of a substitute building without the abnormal obsolescence. 3. Calculate the functional obsolescence factor by dividing the replacement cost new less physical deterioration of the substitute building or structure by the replacement cost new less physical deterioration of the building or structure with the abnormal functional obsolescence.

12 APPEAL 0157/2005 [Page 12] As noted earlier, SAMA did not argue that the overbuilt portions of the subject improvements were not functionally obsolete. SAMA s position to the Committee was solely that the 52% adjustment currently applied to the improvements may well incorporate an adjustment to account for some if not all of the loss in value relating to these overbuilt portions. The Committee cannot agree with SAMA s assertion on this issue for the following two reasons: Firstly, as the submission provided to the Board from SAMA is specific on page 4 in identifying the following: In 2002 for the Board of Revision. [sic], the portion (28,200 sqft) was granted an obsolescence due to the majority of the building being used for warehousing as opposed to the building attributes of a creamery plant. Therefore there was a 24% obsolescence applied to Section 01/01 to bring the value of the 404 in line with the value of a warehouse (401)... For 2005, an obsolescence was applied to the balance of the creamery because the business has been shut down and is presently vacant. (Emphasis added) Secondly, SAMA s argument that the abnormal obsolescence relating to the excess wall heights may likewise be presently considered as the abnormal obsolescence applied to the 60 foot section was currently at 30% whereas the main 20 foot building was receiving an abnormal obsolescence of 24% is not supported by all of the facts. A full review of the detailed property profile reveals that a further 404 section with 18 foot wall height and the auto service (402) section which also has 18 foot wall height, likewise, were both receiving the 30% functional obsolescence adjustment that the 60 foot wall height section is receiving. The Committee finds the appellant s evidence and arguments on this issue to be compelling. Any abnormal functional obsolescence inherent in the subject improvements as a result of its overbuilt type of construction and excessive wall heights has clearly not been calculated nor applied to this assessment pursuant to the above noted requirements of the Manual. As noted in the following excerpt from its decision, the Board accepted that the existing abnormal functional obsolescence was established by SAMA using a warehouse as the substitute building: As stated by the respondent, the building was originally rated as an A quality, 404 creamery, which was later changed through various Board of Revision decisions to a B classification with an obsolescence factor applied to bring the value of the 404 in line with that of a 401, warehouse.... The Board then appears to disregard this fact in making the following finding that it was not possible to determine the replacement cost of a substitute building as it would have to assume a potential use.

13 APPEAL 0157/2005 [Page 13]... determining the replacement cost of a substitute building is not possible, as the Board would then be assuming a use to determine the subjects utility. The Committee believes that the Board has erred in this determination. Based upon the requirements identified in the Manual it would be inappropriate to use any model other than the warehouse model already used by SAMA, to calculate a factor to be applied in order to recognize the additional abnormal functional obsolescence existing in the subject improvements. The Committee is not satisfied that the appellant s assertion relating to the superadequacy and lack of utility inherent in the subject s basement is warranted. Firstly, as the applied MAF was developed from sales which may have included basements any abnormal functional obsolescence would possibly be captured through the application of the MAF. Secondly, the Committee is not convinced by the evidence within the record that a future use of the basement will not occur. The fact that it is presently vacant, awaiting some future use is clearly no different than can be said for the remainder of the subject improvements. This is not evidence on its own to support a conclusion that the subject basement offers no utility. To understand the outcome arising from the application of the Replacement Cost Method to calculate the additional functional obsolescence factor relating to the type of construction and excessive wall height issues, the Committee requested that SAMA provide some alternative calculations by way of an undertaking dated April 18, 2006 in which a factor be applied to reflect the difference in type of construction (type 2 to type 3) and a reduction in the 60 foot wall height to 20 feet. SAMA responded to this undertaking with a written submission which was received on April 28, 2006 with the following calculation results identified: DECISION: 404, Type B.Avg condition (83% depreciation) with height of equipment 20 feet, with obs to 401 Land: 278,100 Imp: 614,000 Total: 892,100 This appeal is allowed. For 2005 the fair value of the subject land shall be $257,430 and the fair value for the subject improvements shall be $614,000 for a total fair value for the subject property of $871,430. The filing fee shall be returned.

14 APPEAL 0157/2005 [Page 14] DATED AT REGINA, Saskatchewan this 6 th day of June, SASKATCHEWAN MUNICIPAL BOARD Assessment Appeals Committee Per: Wade Armstrong, Chairman Per: Cynthia J. Schwindt, Secretary David Wilkin, for the Committee I concur: Ron Pilipow, Member