[1] The appeal is from the decision of the 2000 Property Assessment Review Panel. The value for the property, as determined by the Property Assessment Review Panel is as follows:

[2] The property is a single storey strip mall built in 1990. It fronts on both 152nd Street and 24^th Avenue in the South Surrey area of the City of Surrey.

[3] The mall is anchored with a bank and a restaurant plus eight other commercial units.

[4] The property is well maintained and professionally landscaped. It has all normal municipal services.

[5] The lot is 54,069 square feet, with the improvements covering 27% of the site. Available parking exceeds the bylaw requirements.

[6] The zoning is CHI – Highway Commercial Industrial that permits a wide variety of uses but has specific restrictions on the kind of retail stores and office uses. The zoning bylaw permits an FSR of 100%.

[7] The Appellants believe the value on the 2000 roll is reflective of the actual or market value but argue that when compared to the Assessment to Sales Ratios ("ASRs") of similar properties within the municipality, the property is not equitably assessed. The Appellants claim the differences between assessments and sale prices result in average ASRs in the range of 79% to 85%. Therefore, they say, the assessed value of the subject should be reduced for purposes of equity to somewhere in the range of $2,500,000 to $2,800,000.

[8] As well, the Appellants contend that when compared to the specific assessments for similar properties, the subject has not had proper rates, such as economic rent, vacancy, expenses and capitalization rates applied fairly and consistently, resulting in an inequitable assessment.

[9] The Assessor argues that the property is equitably assessed and that the roll value is below the actual value as determined by a detailed appraisal analysis. However, the Assessor is not asking for an increase to the roll value.

[10] The issues for the Board to decide are:

• whether, under section 57 of the Assessment Act, the assessment is at actual value or the higher value found by the Assessor is the actual value;

• once the actual value has been determined, whether the ASRs of other properties indicate the property is assessed equitably; and

• whether the assessments of similar properties indicate that the assessment of the subject property is inequitable.

[11] The Assessment Act provides as follows:

19 (1) In this section:

[13] The Assessor produced an appraisal report prepared by Ms. B. Smith (Exhibit No. 4). She determined the actual value of the property as $3,859,000 by the direct sales approach and as $3,525,000 by the income approach. Ms. Smith placed most weight on the income approach, and estimated the actual value as $3,525,000 as of the valuation date of July 1, 1999. Her report was predicated on the highest and best use of the property remaining the existing use into the foreseeable future.

[14] Ms. Smith said that the South Surrey area is different from the rest of Surrey. It is an area with an increasing residential base, is near the core area of White Rock, and is a viable commercial area.

[15] In the direct comparison approach, Ms. Smith analyzed five sales: three with C-8 zoning, one with C-D zoning, and one with CHI zoning. The sales were analyzed on a per square foot basis, with two C-8 sales and the one C-D sale judged most like the subject. The C-8 zoning allows more uses than CHI, and Ms. Smith stated the difference in zoning might reflect a higher risk for a CHI property. Regarding the subject, Ms. Smith could not confirm that all the tenants conformed to the uses permitted by the zoning or that they have business licences, but they continue to operate apparently without interference from the City.

[16] The three most comparable sales resulted in values per square foot of $283, $279, and $262 respectively. Ms. Smith chose the rate of $262, and applied it to the leasable area of 14,730 square feet, for a final estimate of $3,859,000 (rounded).

[17] In the income approach, Ms. Smith analyzed the same five sales as used in the direct comparison approach. She gave most weight to a sale located at 8888 152A St., in a different geographical area, and with C-D rather than CHI zoning. Otherwise, she believed this sale was most similar in lot size, building size, age and the number and mix of tenancies. The adjusted capitalization rate for the sale was 7.8%. The range of capitalization rates for all sales was 6.5% to 8.4%. Ms. Smith applied a vacancy allowance of 3% and expenses of 5%.

[18] The potential gross income was estimated by applying rents ranging from $15 per square foot to space leased to a Member of Parliament, to $24 per square foot for spaced leased to a bank. Areas occupied by the owner were attributed rents of $19 per square foot.

[19] Ms. Smith estimated the net operating income at $274,968. She capitalized the NOI at 7.8% resulting in an estimated value for the subject of $3,525,000 as compared with the 2000 roll value of $3,177,000.

[20] Mr. Parkes’ position, for the Appellants, is that the value of the subject should be reduced to a level in accordance with other properties in the area. In support, he produced three different calculations. First, Mr. Parkes selected a sample of nine properties that had sold, with calculated ASRs that ranged from 59% to 96%, and an average ASR of 79%. Next, he calculated the ASRs from a sample of six sales provided by the Assessor. The ASRs for this sample ranged from 73% to 96%, with an average ASR of 88%. Then, Mr. Parkes pooled both samples, finding an average ASR of 82%. In his view, the results suggest a reduction to the assessment in the range of:

[21] Mr. Parkes contends that, based on the above, the equitable assessed value is in the range of $2,500,000.

[22] When questioned, Mr. Parkes was not familiar with the Coefficient of Dispersion (COD), and could not say if it was a measure of equity. Further, he was not familiar with the average or the median ASRs for all Class 06 properties in Surrey, or whether the number of sales used in his calculations indicated a statistically significant result. However, Mr. Parkes believed the sample was indicative of a relationship between assessments and sales prices, as it reflected differences in a stable market.

[23] Ms. Smith said that the standard measure of central tendency for ASRs was the median and not the arithmetic average, as the average may be distorted by extremes. In her opinion, the ASR is not the statistical measure of equity; rather equity is best measured by the Coefficient of Dispersion. She said the median ASR for all Class 06 properties in Area 14 is in the range of 95% to 96%, while the COD range is 9% or 10% which falls within the internationally recognized allowance of a +/- 15% COD for commercial properties. The COD for the area points to consistency in assessment for properties within the same class within the assessment area of the City of Surrey.

[24] Mr. Parkes suggested a secondary check on equity, based on the net income per square foot compared to comparables randomly selected from the local market. Based on eight comparables, the value range generally was between $192 to $204 per square foot, with an average of $199 per square foot. Based on this calculation, he contends a reduction in the assessment of 9% to $2,930,000 is appropriate.

[25] The Assessor argued that equity is a test that applies to assessments applied in a consistent manner within the municipality or rural area. That is, equity applies to all properties within the same class as that of the subject. The Assessor argues that Mr. Parkes has used a selective sample that is not reflective of measures of central tendency, and is not informative of the consistency of assessments within the City of Surrey. In support the Assessor relies on Assessor of Area 09-Vancouver v. Michael Lount (SC353 1995) where the Court said that authorities were required to treat taxpayers even-handedly, and that "All taxpayers within a class must be treated in the same way" (p. 2126-9). The Assessor equates "class" in this reference to one of the classes as found in B.C. Reg. 438/81 Prescribed Classes of Property Regulation.

[26] Ms. Smith estimated the value for the 2000 roll relying on economic rents, vacancy, expenses and an economic capitalization rate. For her appraisal brief, she analyzed specific sales to arrive at the capitalization rate, specific rentals to arrive at the gross income, and selected a stabilized vacancy and expense rate to apply to the gross income. The differences are set out in the following table.

[27] Ms. Smith said she used the rates of 3% & 5% in her appraisal brief for consistency, but applied rates of 5% & 7% in setting the roll in order to achieve equity. In her opinion, vacancy and expenses must be considered over the long term, and short term fluctuations must be ignored. She said she would allow some vacancy allowance, even if the property were fully leased as of the valuation date, as this is how the market perceives vacancy.

[28] Ms. Smith accepts the actual rents for the restaurant and bank areas as economic, but in her appraisal applied a rate of $18.00 per foot to the owner’s area and $19.00 for the vacant space, relying on a study of rental comparables. Ms. Smith said that both areas could have been valued at $18.00 per foot.

[29] In setting the roll value, Ms. Smith applied rates of $19.00 and $20.00 to the retail space in the subject. For the assessments of other similar properties in the area (Exhibit No. 5), Ms. Smith applied rents ranging from $15.00 to $22.00.

[30] Ms. Smith noted the subject conforms to its CHI zoning, and acknowledged this zoning is more restrictive than C8, the zoning for the majority of her comparables. She also acknowledged that the restrictions under CHI may equate to a slight difference in the market’s perception of risk.

[31] In her appraisal Ms. Smith relied on her analysis of five sales to determine adjusted capitalization rates ranging from 6.5% to 8.4% and applied an overall capitalization rate of 7.8% to the property. In setting the 2000 roll value, the capitalization rates used ranged from 8.0% to 9.0% with a rate of 8.5% applied to the subject. The sale producing the lowest adjusted rate (6.5%) in the appraisal brief had the highest rate (9%) applied in setting the roll . She did not give this sale much weight, as she believes the owner overpaid for the property.

[32] For the one property with the same zoning as the subject, but with a residential component, Ms. Smith also applied a capitalization rate of 8.5% for the 2000 roll. Mr. Parkes argued that the residential component ought to reflect a capitalization rate lower than that used for the subject.

[33] Ms. Smith said both her appraisal analysis and the assessments are consistent, although she used different vacancy and expenses, and different capitalization rates in each approach. She said that within each approach she was consistent, and the application of an 8.5% capitalization rate in setting the assessment for the subject was equitable.

[35] While it is open to the Board to consider increasing the value on the 2000 roll based on the Assessor’s analysis, the Board declines to do so. The Appellants were not given notice that the Assessor would seek an increase, and the Appellants do not disagree with the assessment for valuation purposes. The Board considers it unfair to the Appellants to increase the assessment when the Assessor did not serve prior notice of any intention to seek an increase. The Board finds that the actual value for the subject is the 2000 assessed value.

[36] The Board is not persuaded of the accuracy of Mr. Parkes’ approach to demonstrating an inequity by producing a sample of the variances between the sale prices of a selected group of properties and their assessments. For the sample relied on, it may be true that differences exist in the ASRs, but Mr. Parkes did not controvert the Assessor’s evidence that the median ASR was high and the COD was low over the whole of the subject’s property class. As well, Mr. Parkes had little knowledge of the COD, a statistic the Assessor argued was the actual measure of equity, rather than the ASR. On this point, the Board accepts the Assessor’s evidence that the COD is the better measure of consistency of the assessments in Class 06 - Business and Other.

[37] Further, Mr. Parkes’ exercise of averaging the ASRs from three samples, and then averaging those, shines no light on the issue of equity. At best, the approach tends to indicate that the Assessor’s assessments are, on average, for the samples provided, on the conservative side. If the technique of averaging ASRs has any predictive value, it is as reasonable to conclude that the selling price of the subject ought to be some 10% to 12% higher than the 2000 assessment, or very close to the Assessor’s appraisal evidence, as it is to conclude that they point to an inequity in assessments. At worst, the averaging of ASRs for selected samples, and then pooling the averages is nothing more than an arithmetic exercise with no predictive value at all. Although at first glance this approach has some appeal, the Board is reluctant to place much faith on such a crude statistic, when the underlying data are questioned and the rather novel technique is not supported or validated by some other measure of "statistical validity" such as the COD.

[38] Mr. Parkes also relied on the value per square foot as a secondary check on equity. The Board gives this methodology no weight, as it is unsure of the derivation of the sample, and whether the differences represent actual differences in the properties, or whether they point to the issue of equity.

[39] It is very clear that Ms. Smith’s inputs into her appraisal analysis are significantly different from those used to set the 2000 roll. She differs on income, vacancy rates, expense rates, and overall capitalization rates, meaning that she also differs in estimating the potential gross incomes, the net operating incomes and the capitalized values. Ms. Smith said that each approach was internally consistent, although the approaches differ in their particulars. The Board accepts that each approach is accurate for its intended purpose and that it would be an error to mix and match components of one to use in the other. The Board has accepted the appraisal analysis as supportive of the assessed value, so the particulars of the assessment valuation are now to be considered by it in determining whether the property is valued equitably.

[40] The Assessor said that in determining equity the Board should apply Lount, "all taxpayers within a class" and consider, for equity purposes, all of the properties within the subject’s class, or Class 06 – Business and Other. The Board does not reach the same conclusion. Section 57 of the Assessment Act refers to "properties" and not "taxpayers" when referring to assessments being accurate and fair. The unit of comparison is properties. More fundamental, however, is the Board’s disagreement that "class" in Lount equates to classification as determined under B.C. Reg 438/81. Class 06 under the Regulation catches all properties that do not fall in any of the other classes. It is the "catch all" category of Business and Other, undefined in the Regulation and as often as not including those best described as "Other" as compared to those defined as "Business". This class can include anything from an office tower, to a community shopping centre, to a corner grocery store with a residential component and split classification. Nothing in the reading of Lount or Assessor of Area 09-Vancouver v. Bramalea Limited (Trizec Equities Limited) and T. Eaton Company (SC277 1990) (cited favourably in Lount) leads the Board to conclude that either Court was referring to the application of the Regulation. "Class" in those cases means something other than a prescribed property class under the Regulations.

[41] For equity in this case, the Board finds that the assessment of this property ought to be compared with the assessments of similar properties within similar markets, which are subject, as best can be determined, to the same market conditions and perceived by the market as similar and comparable investment opportunities. For this purpose, the Board is willing to accept that the assessements of the comparables selected by Ms. Smith in her appraisal are indicative of the assessments of similar properties for equity purposes. That is, it is reasonable to determine whether the subject has been fairly and consistently assessed to compare that assessment to the assessment of these properties, because they are the same type of properties and share similar market characteristics. That, in the Board’s opinion, is the appropriate unit of comparison, not all of the properties in Class 06 – Business and Other in the City of Surrey.

[42] The Board finds that fair and consistent assessments means that the assessments of similar properties should be made on similar considerations. This does not mean the same rates must be applied in determining the assessment, but should mean that any dissimilarity between them can be adequately accounted for.

[43] The Board typically will not tinker with rates applied and will only make changes where the evidence clearly supports a change on this basis. Further, the Board wants to be clear it will not simply consider the assessment of the appeal property compared to the assessment of one or two other properties and adjust the rates used. For the Board to make any adjustments there must be evidence of a class (or group) of similar properties, and the assessments of those properties as a class (or group) must be looked at, not just one or two from among the class (or group). Simply because one or two other properties may be under-assessed does not mean another property’s assessment should be adjusted. For an adjustment to be made, there must be evidence that the property’s assessment is not fair and equitable compared to the group as a whole.

[44] In this case, the Board finds that the vacancy and expense rates allowed by Ms. Smith in setting the assessment fall within the range of those applied in setting the assessment of similar properties and as such are appropriate.

[45] In setting the 2000 assessment, Ms. Smith accepted the actual income from the restaurant and bank as economic, but looked to the market for rents for the vacant and owner’s spaces. In her evidence, she admits those rents could have been $18.00, rather than the $19.00 and $20.00 she applied in setting the 2000 roll for this property. The Board finds that a rent of $18.00 is more consistent with the rents Ms. Smith applied in making the assessments of other similar properties and there is no reason to apply a different, higher rate to the property. For equity purposes the Board will apply this rate to the area of the subject identified as "retail (front and back)" in the assessment valuation, being 7,583 square feet.

[46] The Board also finds that the differences between the capitalization rates applied in setting the various assessments have not been adequately explained. This property has an admitted higher risk, yet the rate used did not reflect the additional risk.

[47] For equity purposes, the Board finds that the appropriate overall capitalization rate used for roll purposes for this property ought to be at the high end of the 8% to 9% range used by Ms. Smith in setting the 2000 roll for the similar properties, to reflect the admitted higher risk for this property due to zoning. The evidence does not lead the Board to conclude that an economic capitalization rate is 9%, the top of the Assessor’s range, or a rate outside that range. Therefore, the Board finds that for the purposes of fairness and consistency, the appropriate capitalization rate to use in calculating the 2000 assessment for this property should be increased from 8.5% to 8.75%, to reflect the need to adjust for this property’s higher risk compared to other similar properties and the capitalization rates used in their assessments.

[48] The Board recalculates the net operating income as follows:

[49] The Board finds the value of $2,961,000 to be a value arrived at fairly and consistently with other properties in the same class. Applying Bramalea, the Appellants are entitled to an assessment that is not in excess of actual value and that is equitable.

[50] The Board finds that the value of $2,961,000 is both within the range of actual value, and is equitable when compared with similar properties within the same market place.

[51] The Board finds the improvement value on the roll should be reduced accordingly.

[52] The Board orders the Assessor to amend the 2000 roll as follows: