Law Times

PAGE 12 FOCUS November 2, 2009 • Law Times Court rebuffs bank towers' bid to cut property taxes BY DARYL-LYNN CARLSON For Law Times year by the Ontario Assessment Review Board is being hailed by some as a victory following a A n Ontario Divisional Court judgment over- turning a decision last challenge by the owners of To- ronto's biggest bank towers over their property tax assessments. Had the bank towers won, the City of Toronto would have been saddled with paying out possibly hundreds of millions in property tax rebates to property owners. Th e commercial properties that launched the challenge in- clude what's now called Brook- fi eld Place, Royal Bank Plaza, Toronto-Dominion Centre, First Canadian Place, Commerce Court, and Scotia Plaza – all pre- mier addresses for businesses such as banks and fi nancial services, re- tailers, and leading law fi rms. O'Brien's Encyclopedia of Forms, Eleventh Edition, Leases, Division IV Th e dispute focused on a nar- row technical term that defi nes the means by which the Munici- pal Property Assessment Corp. calculates the value of "income- earning properties." Th e tower owners had argued before the Assessment Review Board that if a building's value were assessed as "fee simple, if unencumbered," an appropriate appraisal method would calcu- late each property's worth as if it was vacant without considering any of the tenant leases. Th e terminology describing This valuable resource provides up-to-date precedents and forms that enable busy practitioners to continually meet the demands of their work with ease. Covering every aspect of leases and agreements, this resource lets you access a vast array of leasing documents and provisions, and adapt them to suit your clients' needs. Available online, you can access this service from anywhere, at any time to customize the documents you need and easily send them to your clients for review. Benefit from the following features: • introductory materials , including valuable commentary and extensive checklists on the topics covered • precedents and forms , including a variety of offers to lease, and leases for industrial, office, retail and residential situations • a variety of optional provisions that can be used with the precedent leases in the volume or with your own documents "fee simple, if unencumbered" came about in a package of leg- islative amendments in 1997. For the purpose of tax owing to the city, the interpretation as put forth by the owners would have lowered the value of prop- erties such as Scotia Plaza to roughly $380 million rather than its much higher current market value. Th eir initial hearing was one of the most protracted and time- consuming arguments heard by the board, which sided with the tower owners. Th e city and the Municipal Property Assessment Corp. took the matter to court. In its written decision, the ORDER your copy today Looseleaf & Binders (2) with Internet access • $339 Releases invoiced separately (approx. 1 every 2 years) • P/C 0883030000 Vol. 1 ISBN 0-88804-060-1 • Vol. 2 ISBN 0-88804-389-9 court determined the Assessment Review Board's conclusion was unjust, stating specifi cally that its interpretation "makes no sense. . . . It is unreasonable, approach- ing the absurd." Jeff rey Lem, a partner at Davies For a 30-day, no-risk evaluation call: 1.800.565.6967 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. O'BRIEN'S LEASES (LT 1-4X3).indd 1 LT1102 10/28/09 10:49:32 AM Ontario Real Estate Legislation 2009-2010 Ward Phillips & Vineberg LLP's commercial real estate group, had been closely following a case he says would have had signifi cant fi nancial implications. "If the bank towers had been successful on the appeal, then it would have meant that a very material por- tion of the City of Toronto's as- sessable tax base would have been eroded instantaneously, leaving that much less by way of munici- pal tax revenue," he says. "I think that says it all. If the Key statutes and regulations include: • • 72-85 • • • • • • • • • • • • and regulation • • • • • • • s. 50 (Part II) and regulations ss. 6 and 9 s. 116 and regulation and regulations and regulations and regulations • R.R.O. 1990, Reg. 1026 (under the (Part XI Priorities), ss. • • • s. 2 New in 2009-2010 • • and regulations ) City of Toronto loses revenue, then it will have to do something or run even larger defi cit budgets, all of which . . . will be politically catastrophic. If you raise the mill rate, other taxpayers who do not have large leasehold improve- ments made by tenants then have to make up the spread. If you lower services, people com- plain; likewise, if you run up the city's defi cit. Less money in the coff ers is generally all bad." City of Toronto legal staff breathed a sigh of relief at the time the decision came down in August. Lawyer Susan Ungar declared the city was "thrilled" with the decision. Lem points out the decision ORDER your copy today Perfectbound • 772 pp. • Published November each year Standing order $61 • P/C 0824140000 Current edition only $71 • P/C 0824010000 ISSN 1195-3152 • Multiple copy discounts available For a 30-day, no-risk evaluation call: 1.800.565.6967 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. Ont Real Estate Legislation (LT 1-4X3).indd 1 LT1102 www.lawtimesnews.com 10/28/09 10:50:55 AM simply restores the status quo and is more of an "aversion of disaster" rather than a windfall for munici- palities. Ultimately, it would have been the towers' commercial ten- ants who would have benefi ted most from the assessment board's original decision. Th at's because under a provi- sion called triple-net lease, ten- ants are required to cover the cost of taxes, maintenance, and insur- ance. "During very infl ationary times, the triple-net lease was 'Less money in the coffers is generally all bad,' says Jeffrey Lem. designed to protect the landlord's rate of return from run-away in- fl ation by foisting the cost of tax- es, maintenance, and insurance onto tenants," Lem says. "So you can see how a mate- rial reduction in realty taxes as a result of the bank towers' argu- ment will actually benefi t the ten- ants within the bank towers the most since, under their respective triple-net leases, most tenants pay their proportionate share of all taxes allocable to their premises." Given the province-wide im- plications of the case, the mu- nicipalities of Atikokan, Brant, Ear Falls, Goderich, Lamb- ton, Lincoln, Ottawa, Quinte West, Red Lake, Sarnia, South Bruce Peninsula, and Windsor attended as interveners in the case as all feared losing millions of dollars in tax revenue from commercial buildings. Follow- ing the court's decision, the As- sociation of Municipalities of Ontario issued a news release applauding it. Lem expects the court has had the last word on the mat- ter. "I expect that a new [review board] panel would follow the not-so-subtle hints laid down by the court," he says. "Th e words of the court were not very subtle and, in fact, very harsh against the original [re- view board] decision. I would be very surprised that a new [review board] panel will want to pick a fi ght with the court." Steven Pearlstein, who prac- tises commercial real estate law at Minden Gross LLP, says the board's initial decision would have had huge implications. "It would have transferred the tax burden on to the aver- age homeowner," he acknowl- edges. "Certainly, I don't think people interpreted the law for assessments the way these big owners were suggesting it should be interpreted." He adds: "From a general public standpoint, I don't think anybody thought it'd be ben- efi cial to shift the burden. Our banks and pension funds haven't been lacking in profi ts except for the credit losses they took, which some people might say are from bad judgment calls." But he also notes the case gen- erally languished under the radar for most people. "I don't think the general pub- lic was hyped on this issue." LT Edited by Lang Michener LLP … and more Consulting Editor: H Assignments and Preferences Act Construction Lien Act oward S huster Surveys Act, Tile Drainage Act Vendors and Purchasers Act Surveyors Act Conveyancing and Law of Property Act Estates Administration Act Execution Act Expropriations Act, Land Titles Act Mortgage Brokerages, Lenders and Condominium Act, 1998 Administrators Act, 2006 Fraudulent Conveyances Act Income Tax Act, Land Registration Reform Act Land Transfer Tax Act Line Fences Act Mortgages Act Ontario New H ome W Partition Act arranties Plan Act Planning Act, Public Lands Act Public Transportation and H Improvement Act Registry Act ighway Real Property Limitations Act Road Access Act Print version included with your Internet subscription

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