Ontario is about to start the fifth year of what originally was planned to be a four-year assessment cycle.
Notwithstanding this extension of the current cycle, has anything material recently changed with regard to assessment? Has this COVID event changed anything?
Owners in every jurisdiction of the country have faced exceptional circumstances this year that have impacted the use of, and the revenues from, their properties.
An old saying of mine is “taxation is the price of freedom, but no single property owner should pay more than their fair share, so make sure your assessment makes sense.”
What is “fair” when the market is feeling the impacts of a global pandemic?
Back in April, I did respond to a reader’s question about whether a revival of something like Ontario’s vanishing Vacancy Rebate Program would be a prudent measure to help landlords broadsided by COVID-19.
At that time, I wrote about how the real issue, pandemic or no pandemic, is that a four-year assessment cycle is simply too long. Other provinces have demonstrated that a one-year cycle can and does work.
Owners are hurting
But, let’s put that issue aside. The simple fact is that many property owners are hurting. If a property can no longer serve what was up to this year its highest and best use, even if only for a period of a few months, should its assessed value (and consequently, the property taxes paid by the owner) remain unchanged?
The hotel industry could be considered a poster-child example. A report in April found by that point, more than half of all hotels in Canada had at least temporarily closed and the industry had laid off more than 80 per cent of its workforce.
Months later, the situation hasn’t improved. In October, for example, two downtown hotels here in Ottawa closed their doors for good. The owners behind Albert at Bay Suite Hotel at 435 Albert St. and the Best Western Plus at 377 O’Connor St. announced both had been sold and would close permanently.
At present, it’s believed the new owner will turn the two suite hotels into rental apartments.
Consider the example of these two hotels: A revenue-generating property has closed for what looks like for good, after months of generating little if any revenue and the reported plan is they will be repurposed for a different use.
This anticipated future use may or may not yield the same level of income/value for the owner. While this new highest and best use will still be a kind of residential use, it will no longer be as a hotel. This perhaps should change the way each property is valued.
Questions in search of answers
In any comparable instance, how has market value been impacted and how in turn should that impact the property’s assessment?
I don’t have the answers, but any property owner in this boat, or a similar one, should certainly be asking the questions.
It’s time to consider whether a standing assessment should be challenged, or your assessor approached about taking a fresh look at things. This is particularly relevant if you hold property in Ontario, even though the current assessment cycle will continue for a fifth year into 2021.
The current situation has driven changes in the real estate market and the exact impacts remain to be worked out, but the key factor is whether these changes have affected the use under which a property should be valued. It’s always important to be proactive and cognizant of how your property ranks as an investment.
Perhaps, given the realities that we now face, the location of a property and the highest best use for which it was intended, some properties simply can’t function or have the same best use as they did before the pandemic.
We remain many moons away from returning to any sense of normalcy. The simple truth is that whatever “new normal” we achieve may still in some respects be fundamentally different from the old normal
Consider your alternatives
This viral event may have little impact on the best use and market value of your property, or it may have a profound and lasting one. If the latter, now may be the time to consider alternatives – like the owners behind those two Ottawa hotels obviously did.
As I have written before, in many contexts COVID-19 may be an accelerant of changes that already were in the cards. The pandemic has prompted many of us to take an action that may otherwise have been on the long-term planning horizon for some years from now.
If you are the owner of a commercial property that has been, or continues to be, negatively impacted by the pandemic – and particularly if how it can be best used in the marketplace has changed – it may be in your best interests to ask the same kind of questions regarding assessment that you would of your financial advisor.
But as always, do some homework now before running off half-cocked to pester your assessor or to file an assessment appeal.
To discuss this or any valuation topic in the context of your property, please contact me at [email protected]. I am always interested in your feedback and suggestions for future articles.