Saskatchewan Court of Appeal Reinforces Importance of Comparability in Assessment

CP Reit S Real Estate Limited v Saskatoon (City), 2021 SKCA 100 was an appeal of a group of commercial properties including grocery stores, restaurants, drug stores, salons, a movie theatre, and a frozen yogurt business. All of these properties were classified as retail properties for assessment purposes.

The capitalization rate (or “cap rate”) used to generate the assessed values for appellants’ properties came from a retail sales array that included two disputed sales.

Assessments Violated the Requirements of Comparability, Owners Argued

The owners argued that the sales of the Affinity Credit Union corporate office (the “Affinity Head Office”) should not have been included in the retail sale cap rate array because it is an office. Like many downtown financial institutions, the Affinity Head Office had a customer reception area, but much more of its space was dedicated to its human resources, finance, accounting, operations, marketing, and collection departments.

The owners also disputed the sale of Midtown Plaza, Saskatoon’s downtown shopping mall. They argued that the mall differs significantly for many reasons, including its size, the rental rates for business inside the mall, and its significant parking revenue. Furthermore, the owners noted that Midtown Plaza was assessed separately even from other malls in Saskatoon. If assessors considered Midtown Plaza distinct from other malls, it would not make sense to base non-mall retail assessments on its sale.

At issue was whether the inclusion of these sales in the retail sale cap rate array had violated the requirements of comparability enshrined in the “market valuation standard” (the “MVS”) and the definition of equity under The Cities Act (the “Act”). In particular, the MVS is defined in paragraph 163(f.1) of the Act, as follows:

(f.1)     “market valuation standard” means the standard 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

(iv)      meets quality assurance standards established by order of the agency.

Committee Rejected Owners’ Argument

The owners were not successful before the Saskatchewan Municipal Board Assessment Appeals Committee (the “Committee”), which concluded that the disputed sales were valid. Since the Committee was satisfied that the Affinity Head Office and Midtown Plaza had been sold to arm’s length parties for prices reflective of their market values, there was no reason to interfere with the assessments. The Committee’s reasons stated that because the sales were valid, they met the MVS pursuant to the Act.

Court of Appeal Overturns Committee Decision

The Court of Appeal for Saskatchewan agreed with the owners’ argument that the Committee’s decision was legally flawed, and overturned it.

The Court noted that the MVS applies to assessments, not sales. This is clear from the opening words of the definition of the MVS in the Act: “‘market valuation standard’ means the standard achieved when the assessed value of property” meets the four criteria that follow. By reframing the issue in terms of the validity of sales, the Committee deviated from the proper legal test.

Sale validity is a different concept than comparability. However, the Committee (and the Board that denied the appeal in the initial hearing) failed to appreciate the distinction. As described by Justice Caldwell in the Court’s decision: “the validity of a sale has nothing to do with the similarity of a property that has been sold to the properties being assessed as a group under mass appraisal.”

The Court properly recognized that if a sale in the array is not similar to the properties assessed using the cap rate from that array, the assessed value by definition does not “reflect typical market conditions for similar properties,” a requirement that the assessment must meet in order to satisfy the MVS, and to meet the definition of equity (which requires both the MVS to be met, and for the assessed value to bear fair and just proportion to the market value of similar properties).

Comparability of the Disputed Sales

Because neither the Board nor the Committee analyzed the comparability issue before them and chose instead to analyze sale validity, which was not actually in dispute, it fell to the Court to do the proper analysis. In doing so, the Court concluded that comparability requires sales to be organized into groups that allow for meaningful comparisons; that is, the sales and assessed properties should share traits and characteristics that influence their market value.

This meant that including the Affinity Head Office in a retail sales array was not a valid comparison. The Court rejected arguments from the City that “the usage of a property is irrelevant to whether it is comparable, citing multiple contradicting passages from guidance materials used by assessment offices themselves. The Court also rejected the City’s argument that “comparability does not involve comparison of individual properties,” writing that: “Although it acknowledged that this Court has held otherwise in cases like Walmart, Harvard 2017 and 994552 NWT, the City said our jurisprudence is ‘wrong’ and invited us to ‘revisit’ the law.”

In relation to Midtown Plaza, the Court wrote that “If, on a principled basis, malls are not similar enough to each other to satisfy the market valuation standard, then it is difficult to imagine how the Midtown Plaza could be found to be similar enough to a run-of-the-mill retail shop to satisfy the standard.” Many significant features that affect market value distinguish the mall from the owners’ properties.

Takeaways for Property Owners in Saskatchewan

This decision reinforces that the assessment appeal tribunals cannot fail to analyze issues of comparability by reframing them as issues of sale validity. The concepts are distinct, and the requirement that an assessment be based on comparable properties is a legal imperative.

This decision also demonstrates another case in which property owners were required to proceed through multiple levels of appeals before the actual issues they raised were considered. Appeals tribunals must understand the arguments that are actually before them and rule on those arguments. If they choose to focus on non-issues, their decisions will be overturned.

MLT Aikins was pleased to act as counsel to the owners in this successful appeal. Our Tax Litigation & Dispute Resolution team has extensive experience pursuing property tax assessment issues in Saskatchewan. Contact us to learn more.