• Highest and Best Use Property Tax Increases
  • October 17, 2013
  • Law Firm: Borden Ladner Gervais LLP - Toronto Office
  • Owners or tenants of commercial/industrial property in Ontario, including retirement home owners/operators, should be aware of recent increases in property tax assessments made by Ontario’s assessing authority, the Municipal Property Assessment Corporation (MPAC).

    Especially in the City of Toronto, MPAC is valuing many properties on the basis of their “highest and best use” (HABU) rather than their actual use. These assessments have led to some significant property tax increases. For example, some owners of retail/office properties have seen their taxes more than double because MPAC has determined that the property’s HABU is something other than its current use.

    HABU is an appraisal concept that focuses on the “reasonably probable use” of a property that is fiscally possible, appropriately supported, financially feasible, and produces the highest property value. All four of these “tests” must be satisfied in order for a property’s true HABU to be determined.

    Given recent development activity, particularly in Toronto, MPAC is producing aggressive property valuations based on its perception of the market and its often flawed analysis of the impact of zoning changes (both real and perceived) on the market value of a property.

    Last fall, MPAC sent assessment notices to all property owners in Ontario. These notices set out the new assessed values for the current 2013- 2016 property tax assessment cycle. All real property was re-valued using an effective valuation date of January 1, 2012. Property owners should review these notices, or their municipal property tax bills, to determine if they have experienced significant increases.

    If you are faced with a HABU valuation, you should seek professional property tax advice. Your advisor will review the valuation with you and determine how it can be challenged. Among other things, the land sales used by MPAC to derive the redevelopment value should be analyzed to ensure that they are true “comparable” sales. In addition, the zoning designations of all “comparable sales” as well as of the subject property must be carefully reviewed to see whether it is feasible that redevelopment would occur on the property during the taxation years in question.

    Finally, as noted above, tenants could also be impacted by HABU assessments. This is especially true for larger tenants, such as big box or other large commercial retailers, who are single- occupants of space. A tenant who is the sole occupant of a building and responsible for paying all property taxes could see a huge increase in its tax burden if that building has been assessed using HABU.

    Property owners, and large tenants, should not take HABU tax assessments for granted. It is well worth the time and investment to review and, if necessary, challenge your assessment.