Details of how the Ontario government might fulfill its promise to protect industrial properties from inflated valuations are still scarce, but it wouldn’t necessarily require new legislation. Section 10 of the Municipal Property Assessment Corporation Act allows the Minister of Finance to issue “general or specific” directives related to MPAC’s activities — authority last exercised in 2015 when the then Minister of Finance, Charles Sousa, called for policies, procedures and standards to guide the assessment of seven specific types of manufacturing and mill facilities.
Property tax and assessment specialists theorize that’s why the action is included in a list of initiatives associated with Bill 66, the proposed Restoring Ontario’s Competitiveness Act, even though none of the bill’s dozens of legislative amendments pertain to the Assessment Act. The government’s associated Dec. 6 backgrounder makes the promise, under a heading that reads “Protect industrial lands”, and focuses on communications with MPAC.
“The government will confirm with the Municipal Property Assessment Corporation (MPAC) that industrial properties will be assessed based on current permitted uses, not speculative uses,” it states. A brief accompanying explanation calls this a “measure under the Assessment Act” and reiterates it “would confirm that the methodology MPAC uses to assess business properties is based on permitted land uses only.”
Highest-and-best-use considerations skew values
Instructions to MPAC would presumably address the application of highest-and-best- use considerations when assessing properties deemed to be in transition. Assessed values of some properties rose sharply during the most recent province-wide reassessment exercise in 2016 because they were pegged to land uses that could theoretically exist on the site. That was most notable in the case of small commercial properties, which were assessed based on the potential for high-rise residential, and industrial properties in areas facing redevelopment pressure.
The Ontario government’s Dec. 6 pledge focuses on the latter. “This would protect businesses on employment lands where land values have jumped because of new residential developments nearby from steep property tax increases,” it maintains.
“If the government wants to make an impact and do something quickly, a directive can be effective,” advises Jack Walker, a partner with Walker Longo & Associates LLP and co-author of the Ontario Property Tax Assessment Handbook. “The notification (in the Bill 66 backgrounder) got a lot of positive feedback from large industrial property owners.”
Otherwise, reaction has been muted. MPAC has not acknowledged the government’s statement on its own website, but AMCTO, an association for municipal managers and administrators, posted this comment on December 17, 2018: “In a follow-up to AMCTO, MPAC confirms that it will continue to value industrial properties, including those on employment lands, based on permitted uses only, as determined by land use policy set by the province and municipalities.”
Recently released amendments to the Greater Golden Horseshoe Growth Plan, now open for public comment, include a proposed new policy for employment lands that also hints at the government’s agenda for industrial properties. “The development of sensitive land uses, major retail uses or major office will avoid, or where avoidance is not possible, minimize and mitigate adverse impacts on industrial, manufacturing or other uses that are particularly vulnerable to encroachment,” it states.
Closures undermine tax base
Meanwhile, the closure of industrial enterprises triggers other issues for property owners and host municipalities. Property tax liability could be a factor in an owner’s ability to sell the site to another industrial user or return scaled-down operations to full production, while concerns about the assessment base can sway municipal decisions to either retain or rezone employment lands.
“The big industrial manufacturing properties are essentially the antithesis of the downtown office properties,” Walker observes. “With big industry, the sales value (of the land) is low. The value is when they are operational. When they are not, the diminution in value is huge.”
David Gibson, a director with Yeoman & Company Paralegal and Professional Corporation, cites the example of the closure of a 1.5-million-square-foot auto parts plant. “The value came down from $38 million to $2.8 million,” he reports.
The fallout is likely be multiple times greater when the General Motors automotive assembly plant in Oshawa is shuttered. “The facility is about 14 million square feet so the impact is very significant on Oshawa’s tax base,” Gibson affirms.
Barbara Carss is editor-in-chief of Canadian Property Management.