Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
Christopher Robb
AND
Assessor Of Area #17 - Penticton
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Appeal No.: |
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Refer to as: |
Robb et. al. v. Area 19 (2009 PAABBC 20091597) |
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Date of Decision: |
November 25, 2009 |
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Properties: |
17-51-713-04008.000, Grand Forks Rural 17-51-713-04131.000, Grand Forks Rural 17-51-713-04907.000, Grand Forks Rural 17-51-713-04908.000, Grand Forks Rural 17-51-713-06972.000, Grand Forks Rural 17-51-713-07155.000, Grand Forks Rural 17-51-713-07155.005, Grand Forks Rural 17-51-713-07155.100, Grand Forks Rural 17-51-713-07155.200, Grand Forks Rural 17-51-713-09072.000, Grand Forks Rural 17-51-713-07154.000, 1300 Norwegian Creek Road, Grand Forks Rural |
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Heard: |
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Submissions: |
From the Appellant, dated September 21, 2009 and October 2, 2009 |
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From the Respondent, dated August 26, 2009 and October 6, 2009 |
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Board Panel: |
Donald H. Risk, QC, Panel Chair |
INTRODUCTION
[1] This is an appeal of a decision of the Property Assessment Review Panel (PARP) by the owner and lessee of eleven contiguous parcels totalling some 1,384 acres known as the Norwegian Creek Ranch, just north of the Canada US border and north east of Midway, BC.
[2] Both parties agree that the appropriate valuation date for the 2009 assessment roll is July 1, 2007. The only issue in this appeal is the market value of these parcels as of that date. The Appellants withdrew the issue of farm classification.
[3] The Appellants say that the best evidence of value is that used by the Appellants to buyout their partner’s 50% interest in the ranch in 2006. The Assessor says that the buyout value is not credible as the property was not exposed to the market and the buyout may not have been truly arms length.
[4] The Assessor, based on an appraisal that is in evidence containing comparable sales and market data, recommends that the values of each parcel be lower than found by PARP. However, the Appellants say even these lower values remain too high and do not represent market value at July 1, 2007 for the purposes of the 2009 assessment roll.
FACTS
[5] Norwegian Creek Ranch is made up of 11 contiguous parcels, each of which is the subject of this appeal, all in the Agricultural Land Reserve (ALR). The Ranch was established in 1905. It is located in an area of natural grasslands and Ponderosa Pine and is best suited for raising beef cattle. It grew to its present boundaries in the early 1950’s. The Ranch has perimeter, pasture and cross fencing with cattle guards. Not all of the parcels have road access. Only one of the parcels (roll # 713-07154000), on which the original log house homestead and other improvements are situate, has electricity. I digress for a moment to note that there is no dispute between the parties about the value of the improvements on this parcel. The Appellants’ family has owned and operated the 11 parcels as one cattle producing ranch unit since 1971. The 11 properties have long enjoyed farm classification.
[6] Since the discovery of Bovine Spongiform Encephalopathy (“BSE” or mad cow disease) the cattle business in the southern interior and elsewhere in Canada has deteriorated to an unprofitable industry. Many producers have left the beef business. Two neighbours, adjacent to the Appellants, both pioneer families, have left the cattle business due to poor economics. In addition to the deterioration of the cattle industry, the local market and price for dry land mixed grass hay has declined as well; while fuel, equipment and other costs have risen. The Ranch operation no longer breaks even and does not meet the revenue requirements for farm classification.
[7] While the Assessor and the Board are obliged to establish a market value for each parcel, in order that the submissions of the parties might be put in some context, I observe that the original assessed values, confirmed by PARP for the 11 parcels aggregate some $2,700,000; the values in the appraisal put forward by the Assessor (which I will refer to in more detail below) aggregate some $1,960,000; and the Appellants argue for an aggregate value of $1,500,000.
SUBMISSIONS
[8] Both parties submitted photos and various maps to orient and support their submissions. The submissions fall into two general areas: the Appellants’ purchase from their partner, and the comparable sales data contained in the Assessor’s appraisal.
1. The Appellants’ purchase of the partner’s one half interest in the Ranch
[9] The Appellants submit that the appropriate aggregate value of the 11 parcels at July 1, 2007 was $1,500,000 based on the price of $750,000 that the Appellants paid their long time partner sometime in 2006 (the precise date is not disclosed in the evidence) for the partner’s one half interest in the 10 owned and one leased parcels of land. To arrive at that value, the Appellants deducted a value for machinery, tools and equipment, and added 7% to reflect an increase in value between the time of purchase and the value at July 1, 2007.
[10] The Appellants say the transaction was fully negotiated and arm’s length although they did not want to purchase the interest, and characterize the transaction as not their idea, and despite 35 years of partnership, semi-hostile.
[11] The Assessor dismisses the Appellants’ purchase as proper evidence of value by arguing it was not arm’s length, as being between related parties, namely partners who had been so for 35 years. The Assessor further suggests one or both the parties may have been under abnormal pressure, even duress. The Assessor also suggests that the property was not made available to the general public so its purchase and sale in 2006 was not exposed to a normal competitive and open market. The Assessor notes that the Appellants cite no market value indicators to show how the parties arrived at the price of $750,000. I note the Appellants presented no evidence of comparable sales, no professional appraisal, and no realtor market evaluation. The Assessor notes that the Appellants advance no evidence to support the deduction made for value of the machinery, tools and equipment, nor is there any data or market analysis or other evidence in support of the 7% increase.
2. The Appraisal submitted by the Assessor
[12] The appraisal states that the highest and best use of the parcels is its current use as rural acreage. The Assessor states that the 11 lots and each of the comparables used in the appraisal are all rural acreages with no subdivision potential.
[13] The appraisal contains information in some detail about the improvements on the homestead parcel, # 715-07134000. It notes that that parcel is the only one with electricity. It characterizes the trend in the district as stable.
[14] In comparing the various parcels to the 12 comparables cited in the appraisal the factors cited as being important are size, proximity, topography, road access and whether it has electricity. Of the 12 comparables only #11 and #12 have electricity.
[15] The prices of the comparable sales are time adjusted to July 1, 2007. There are 3 appendices in the appraisal containing information, based on resales and paired sales, to support the appraiser’s adjustments for time of sale to July 1, 2007, whether a parcel has electricity, and whether a parcel has legal road access.
[16] The appraiser, after adjusting the price in the comparable for time, computes an adjusted price per acre, which when comparing the comparables to the various parcels, is used to value those parcels. Where prices per acre of the comparables vary, the appraiser uses a price per acre between the two, adjusting down or up based on a relatively arbitrary reference to proximity to the particular parcel being valued; price per acre of the closer comparable being given greater weight than that of the one farther away.
[17] The per acre prices follow a pattern based on size of the comparable, not too precise, but larger acreages have lower prices per acre than smaller. In some cases when valuing a particular parcel, the appraiser adjusts different per acre prices of the comparables to a per acre value for the particular parcel that bears a more or less arbitrary relationship to size.
[18] I note that when comparing parcels without electricity to particular comparables, the lack of electricity is not mentioned where the data in the appraisal reveals that the comparable does not have hydro, I presume a synonym for electricity.
[19] All the comparables appear to have road access. The appraisal only makes an adjustment for no road access in respect of parcels where the lack of access is noted.
[20] The locations of the comparables are shown on a map, and appear to range from 5 or less kilometers to approximately 40 kilometers away from the Ranch, with most of the comparables seeming to be no more than 15 or so kilometers away. Photos reveal that the comparables are rural acreages like the 11 parcels. Although I note that one photo, apparently mislabelled in the appraisal as one of the parcels in this appeal, is the same photo for the comparable identified as #12.
[21] I note that the appraiser uses only 2 or 3 of the 12 comparables, usually one supported by another two, when discussing the comparable features of size, proximity, topography, electricity and road access in respect of each of the 11 parcels in this appeal. Different comparables for different parcels.
[22] The Appellants argue generally that the aggregate of the values of the 11 parcels as set out in the appraisal is still not low enough and in any event, is not market value. The Appellants argue that the appraiser fails to take into consideration that subdivision and land uses are restricted as the 11 parcels are in the ALR, one has a caveat that restricts resale, one is leased from the Crown and has no residential value. In addition, classifying the parcels as “residential” is not appropriate as only one has power, only a few have road access, and none have the usual residential municipal services such as water, sewer, or garbage collection. More specifically the 10 acre gravel pit developed by the Department of Highways is unsightly and reduces adjacent land values from noise and aesthetic perspectives. The Appellants further suggest that the gas pipeline visible in the map in the appraisal crosses a number of the lots which reduces their utility.
[23] The Appellants say that the permanent closure of the sawmill in nearby Midway, and the receivership of its operator in 2007 reduced employment and timber and real estate values in the area. They argue that the appraiser errs when characterizing the area as stable: it should be characterized as deteriorating. They say the downward adjustment for no hydro on the parcels without hydro is not apparent. They note that the appraisal suggests that it may take from 6 to 24 months for these parcels to sell and realize the values in the appraisal, but there is no time adjustment for that market exposure period. The Appellants take issue with higher per acre values on certain parcels compared to other parcels in the appeal.
DISCUSSION, FINDINGS and CONCLUSION
[24] I have a few observations generally on the submissions of the parties which will dispose of some of the issues. Where a parcel is owned by and leased from the Crown rather than owned by the person assessed (#713-09072000), Section 26(2) of the Assessment Act provides that it must be assessed to the occupier. The Act also provides that each parcel must be separately assessed. An aggregate value for a collection of parcels will not suffice.
[25] For assessment purposes, lands to be assessed must fall into one of the classes set out in the Prescribed Classes of Property Regulation, B.C. Reg. 438/81, as amended. Where lands cease to be eligible to be classified as farm, they will be classified for assessment purposes as residential, as is the case here, unless some other class is appropriate and where required, is properly applied for. In this case, the Assessor acknowledges that the parcels have no subdivision potential and are in fact used (except for the homestead parcel) as rural acreages. In any event, I do not need to make a finding on classification as that issue is not before me in this case.
[26] I now will turn to the Appellants main argument about value; namely that the price paid in the purchase of the partner’s interest in 2006, excluding machinery and equipment, and adjusted for time from sale to July 1, 2007, establishes the proper market value at that date for the 11 parcels comprising the Ranch. I disagree.
[27] I am sympathetic to the Appellants’ situation. A successful cattle operation has been devastated by a situation almost totally beyond their control. They buy out their partner, stretching financially to do so, probably to fulfill the stated intentions to hold the Ranch as a contiguous unit for the next generation of their family; and to return to “farm” status when the economics of raising beef cattle improves.
[28] Under the Assessment Act, property must be valued at its actual value. Actual value is defined as market value. The Assessor in the appraisal has supplied a definition of market value which I find to be appropriate in this case. The definition is from the Appraisal Institute of Canada, The Appraisal of Real Estate: 2nd Canadian Edition, and I quote: “Market Value…is…the most probable price, as of a specified date, in cash, or in terms equivalent to cash,…for which the…property…should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and for self-interest, assuming neither is under undue duress.”
[29] The trouble with the Appellants’ argument about value is that it does not meet this definition or test of market value in a number of respects. There simply was no exposure, let alone reasonable exposure, of these parcels comprising the Ranch in a competitive market. While the parties to the sale were related, I have no doubt that in ending their long partnership in this way they negotiated out of self-interest, and in that sense, the negotiation could properly be seen to be arms length. Evidence is scarce but I don’t think either was under undue duress. There is no evidence to show whether they were negotiating prudently or knowledgeably. The negotiations were in a difficult time, what with the impact of BSE, and may well have been hostile at times, but one wanted out and the other in, and they came to a price and terms acceptable to them both.
[30] The lack of market exposure is not the only deficiency. The Appellants have not offered any evidence as to how the price was arrived at. Nothing to show if it was based on comparable sales even those of their neighbours who left their ranches, or otherwise; no professional appraisal, no market valuation by a local experienced realtor. Also, the Appellants offer no evidence to support the value deducted for machinery and equipment, its age, condition, comparables or otherwise. Nor do the Appellants provide any evidence to support the 7% time from sale to July 1, 2007 adjustment. Nor do the Appellants offer any evidence to support suggestions that the gravel pit, the gas pipeline crossing, and the closure of the sawmill reduce the market value. It may be the case that particular values are reduced by those factors but the Appellants give me no evidence on which to reach such a finding, and if so found, as to how much the reduction should be. Finally, the Appellants give me no guidance as to how the aggregate value they argue to be market value is to be apportioned among the 11 parcels in this appeal. Therefore, I reject the Appellants’ arguments in support of market value.
[31] I will now turn to the Assessor’s arguments and the appraisal which does suggest market values for each parcel.
[32] Based on the information set out in the appraisal in respect of each of the 11 parcels in this appeal, and in respect of each of the 12 comparables, I find that the use of the parcels is as rural acreages. I find that the data and factors affecting their values have been properly identified and weighted and adjusted for by the Assessor. Those factors include size (acreage), proximity to the Ranch, no subdivision potential, topography, availability of water and hydro power, and legal road access.
[33] I find the information set out in Appendices C and D of the appraisal of resales and paired sales on which the Assessor bases his adjustments to market value of particular parcels for time, lack of hydro, and lack of legal road access, to be sufficient and the adjustments made by the Assessor in those regards, fair and reasonable. And I find that adjustments in that regard have been made to the appropriate parcels, and properly not made to other parcels not affected by those particular factors.
[34] I find that the adjustment for lack of road access made to roll # 713-07155100 fairly and adequately accounts for the caveat on this parcel.
[35] In respect of each particular parcel identified in the appraisal, I find that the per acre price applied to each parcel is a fair and reasonable one.
[36] I therefore, conclude that the market values set out on page 11 of the appraisal dated August 26, 2009 for each of the 11 parcels identified by roll number are the actual values for each of these parcels respectively as at July 1, 2007 for purposes of the 2009 assessment roll.
ORDER
[37] The Board orders that each of the original 2009 assessed values of each parcel identified by roll number, confirmed by PARP, be adjusted downwards to the corresponding actual values set out on page 11 of the Assessor’s appraisal.
[38] The assessed values for land for each parcel should be split between tax codes 00 and 13 (which is for land in the Agricultural Land Reserve). However, I do not have submissions before me, particularly from the Assessor, to make this determination on the split for the new land values. Therefore, the Assessor should provide to me, with a copy to the Appellants, no later than November 30, 2009 the proposed split between the two tax codes for the land values set out in page 11 of the Assessor’s appraisal. The Appellants shall have the opportunity to respond to the proposed split in writing, copy to the Board and the Assessor, by December 7, 2009.