Retail Property Owners – Reduce Your Exposure To Vacant Stores And Reduce Taxes For Your Tenants!

In Realty Tax by Ricardo McRae

CBC’s recent headline dated May 22nd, 2017 “High commercial rents stripping Queen Street West of its ‘heart’” reflects the impact of spiking rents, compounded by spiking property taxes.

The recent reassessment from 2012 values to 2016 values was designed to capture value changes in neighborhoods like ‘Queen Street West’ whose values have spiked causing massive tax increases, resulting in “40 vacant storefronts”.

In addition, the former ‘vacant unit rebate’ will most probably be eliminated by tax starved municipalities across Ontario, including Toronto in 2017. Consequently, the former refund of realty taxes for vacant space, will no longer be given to owners.

To add insult to injury, we are finding that the assessor has applied a new value method based on Highest and Best Use value as vacant commercial land, or, as redevelopment land, which is higher than the cumulative value of the tenants units based on their rent. As a result, tenants are paying more than the value of their unit.

These changes are a triple threat, and their compounding spike in added taxes is not sustainable.

Here Is What Owners Can Do To Reduce Taxes And Vacancy:

  1. Between reassessments in a rapidly increasing market, the City of Toronto tax department appealed properties whose sale prices were much higher than their assessed value. Owners can prevent an increase by appealing the City’s appeal to increase using ‘Equity’. This very issue occurred in ‘Queen Street West’. The new owner did not appeal the City, which then led to a significant increase. It could have been prevented. If you receive mail showing your property has been appealed respond immediately and get prepared.
  2. With the assessed values now being based on the highest and best use value of vacant land, owners can appeal and focus on the income approach to value which will necessarily be lower. There are certain factors that, if in place, will support the lower income approach to value over the Highest and Best Use value. We did this in the case which was headlined in the Toronto Star on  “Massive property tax hike forces Yonge St. mom-and-pop store out”, we reduced the taxes by 63%, and 6 months later the new headline read “Mom-and-pop store saved by property tax reduction”.
  3. Our experience shows the realty tax clauses in commercial leases do not deal with property taxes that are based on Highest and Best values now being used by the assessor. Hire a law firm that specializes in property tax to work with your leasing lawyer, or, engage a leasing lawyer who is intimately familiar with property tax.
  4. The assessment act permits assessments to go below Market Value in certain circumstances. It is referred to as ‘Equity’. We reduced the taxes of the tenant, a global fashion retailer situated in ‘Queen West’   by 12 below its Market Value. It is referred to as its “Equitable Value”.  Whereas, the owners tax agent of that same property had been prepared to settle at Market Value which was 12% higher than its Equitable Value.
  5. With the elimination of vacancy rebate refunds there is a negative impact on value. The Municipal Property Assessment Corporation (MPAC) did not take that into account in their 2016 reassessment. The lost revenue from the vacancy rebate has to be recognized when a municipality eliminates the vacant unit rebate program.

RAE  BUCHAN, AACI, P. APP., Licensed Paralegal managed the property tax group at PricewaterhouseCoopers and helped set up Deloitte.’ s property tax practice before setting up the boutique property tax, appraisal and consulting group Context Realty Advisors. He has represented owners and tenants of retail properties across Canada.

The largest tax reduction and savings he was involved with was $33 million related to the apportionment of realty taxes in shopping centres in Toronto.