Sun Life v. City of Montreal

Sun Life v. City of Montreal
Collection
Supreme Court Judgments
Date
1950-02-21
Report
[1950] SCR 220
Judges
Rinfret, Thibaudeau; Kerwin, Patrick; Taschereau, Robert; Rand, Ivan Cleveland; Estey, James Wilfred
On appeal from
Quebec
Subjects
Taxation
Decision Content
Supreme Court of Canada
Sun Life v. City of Montreal, [1950] S.C.R. 220
Date: 1950-02-21
Sun Life Assurance Co. Of Canada (Plaintiff) Appellant;
and
The City Of Montreal (Defendant) Respondent.
1949: October 4, 5, 6, 7, 11, 12; 1950: February 21.
Present:—Rinfret C.J. and Kerwin, Taschereau, Rand and Estey JJ.
ON APPEAL FROM THE COURT OF KING'S BENCH, APPEAL SIDE, PROVINCE OF QUEBEC
Assessment—Municipal—Office building partly owner and partly tenant occupied—Actual value—Exchangeable value—Prudent investor—Replacement cost—Commercial value—Non-productive features.
In the municipal assessment of a very large office building in Montreal, which is approximately 50 per cent owner-occupied and the remainder rented, and whose size, design and particular architectural features make it impossible to be compared with any other building in that city, Held: That the actual value which the assessors must find pursuant to the city charter is the exchangeable value or what the building will command in terms of money in the open market, tested by what a prudent purchaser would be willing to give for it; and, on an appeal to either the Superior Court or the Court of King's Bench (Appeal Side), by force of the charter of the City of Montreal, these Courts must render "such judgment as to law and justice appertain". Moreover, a municipal valuation for assessment purposes is not to be made in accordance with the rules laid down with regard to the valuation of a property for expropriation purposes. The valuation must be made of the property as it stands and as used and occupied when the assessment is made.
Held: That the actual value of this building should be determined by giving to the percentage of the replacement cost, after allowing for the extra unnecessary costs of the construction, a figure of no more than 50 per cent.
Held: On principle, the non-productive features of a building, in so far as they do not add to its actual value ought not to be included among items in the determination of that value for municipal assessment.
Per Kerwin J.: The formula used by the assessors, having failed to produce the actual value, should be disregarded and the commercial value only should be considered.
APPEAL from the decision of the Court of King's Bench, appeal side, province of Quebec 1, reversing, St-Jacques and Casey J.A. dissenting, the judgment of the Superior Court, MacKinnon J., and confirming the municipal assessment made by respondent's Board of Revision.
F. P. Brais, K.C., and H. Hansard, K.C., for the appellant.
D. A. McDonald, K.C., and R. N. Séguin, K.C., for the respondent.
The Chief Justice:—The subject matter of this appeal is the assessment for municipal purposes of the properties of the Sun Life Assurance Company of Canada in the City of Montreal. While there may be recognized general principles concerning municipal valuations, yet the main concern of the Courts in this case is evidently to apply the several provisions of the charter of the City of Montreal having reference to the subject.
Section 361 of the charter provides that all immovable property situate within the limits of the city shall be liable to taxation and assessment, with certain exceptions with which we are not concerned. It declares that immovable property shall comprise lands, buildings erected thereon, and everything so fixed or attached to any building or land as to form part thereof, but shall not include machinery, tools and shafting used for industrial purposes, except such as are employed for the purpose of producing or receiving motive power.
Under section 375(a) every three years the assessors shall draw up in duplicate for each ward of the city a new valuation roll for all the immovables in such ward, and this roll shall contain, amongst other things, the actual value of the immovables. However, whenever buildings or constructions erected upon an immovable entered in the previous roll have been changed or altered, or whenever a lot has been subdivided or divided, a new valuation of such property shall be made according to law and entered on the valuation roll by the assessors. The same section provides that at least two assessors shall act together in drawing up the valuation roll. The roll is deposited on the first of December. A public notice thereof is published and, during the delays fixed by the notice, the chief assessor is directed to receive complaints filed with him respecting any entries in the roll and to transmit them immediately to the Board of Revision.
By Section 382 a Board of Revision was created to be composed of three members appointed by Council on the report of the executive committee. The Board hears complaints at public meetings at which witnesses are called. The President decides questions of law. The Board may compel the appearance before it of one or several assessors in order to know in what manner and according to what principles they have proceeded to establish their valuations generally or in a particular case, or on what basis such valuations are founded, after which it may determine itself, or with the assistance of experts, the valuation in question; and, in so doing, it may increase, or reduce, or maintain, the valuation.
By force of section 384 of the charter an appeal lies from any decision rendered by the Board of Revision to any one of the judges of the Superior Court, by summary petition. The judge may order a copy of the record, including copies of the valuation certificate and of the documents annexed thereto/of the proceedings of the Board of Revision, as well as of the complaint itself; and, after having heard the parties, but without inquiry, he must proceed with the revision of the valuation submitted to him and with the rendering of such judgment as to law and justice shall appertain.
A further appeal lies from the decision of the judge of the Superior Court to the Court of King's Bench, when the amount of valuation contested for the property concerned exceeds five thousand dollars, or when the amount of the rental contested and under examination exceeds one thousand dollars.
I only want to emphasize that, in the case of an appeal, the judge of the Superior Court, under the charter (sec. 384) shall render "such judgment as to law and justice shall appertain." Although this is not repeated with reference to the decision which the Court of King's Bench must render, it cannot be understood to mean that such Court is not to be governed by the same direction as the judge of the Superior Court. If we carefully examine the judgment rendered by the Court of King's Bench 2 in the present instance, and the reasons given by the majority, I am of opinion, with respect, that, in the judgment appealed from, that direction of the charter of the City of Montreal has not been followed. That is apparent by the following considérant of the formal judgment:—
Considérant, par conséquent, que si la base d'une évaluation faite par le Bureau de revision n'est pas manifestement fausse; si le Bureau n'a pas commis d'erreur évidente dans ses calculs, et que la méthode suivie pour déterminer la valeur n'a pas eu pour effet de créer une injustice certaine, ni le juge de la Cour Supérieure ni la Cour du Banc du Roi ne devraient intervenir pour modifier la décision du Bureau.
It is also apparent throughout the reasons given by the learned judges who formed the majority.
Now, of course, the principle embodied in the considérant, above reproduced, is the general principle followed in appeals from municipal assessments, but, as can be seen from the text of the charter, it is not the principle laid down by the latter. The Court of King's Bench professed to be governed by the general principle and applied it to the judgment it rendered and disregarded section 384 of the charter which prescribes, as we have seen, not that they ought not to interfere in the assessment only if the Board of Revision was manifestly wrong and had committed an evident error, or created a clear injustice, but that both the judge of the Superior Court and the judges of the Court of King's Bench should render "such judgment as to law and justice shall appertain." It follows that the judgment now under appeal, in my humble opinion, was not rendered according to the law which governs the City of Montreal, and that, for that reason alone, it ought to be set aside.
On the other hand, the learned judge of the Superior Court undoubtedly followed the principle laid down in the charter as to the powers which he was entitled to exercise, to such an extent, as a matter of fact, that the majority of the Court of King's Bench found that he had been wrong in doing so.
I need not insist on the point that a municipal valuation for assessment purposes is not to be made in accordance with the rules laid down with regard to the valuation of a property for expropriation purposes. One main ground why such a course should not be followed is that the expropriation of a property means the permanent divesting of the owner and should legitimately, therefore, take into account the present value and all the prospective possibilities of the property, while the municipal valuation is, generally speaking, only made for one year, or, in the case of the City of Montreal, for three years, with certain provisions for modification if certain events happen, such as alteration, improvement, fire, etc. The rule was laid down by Lord Parmoor in Great Western and Metropolitan Railway Companies v. Kensington Assessment Committee 3, that in such a case "the hereditament should be valued as it stands and as used and occupied when the assessment is made." In the yearly valuation of a property for purposes of municipal assessment there is no room for hypothesis as regards the future of the property. The assessor should not look at past, or subsequent or potential values. His valuation must be based on conditions as he finds them at the date of the assessment. In particular, in the preent case, there was no ground for considering any other condition, as no suggestion of any kind appears in the record that there was, throughout the period of assessment, a prospect of any change. The Sun Life property, as it stood at the time of the valuation now in question, was occupied about sixty per cent by the company itself for its own purposes and about forty per cent by tenants. That is how the assessors found the property at the time they made their valuation, and that is the only aspect of the property that they had to take into consideration. If some material change took place during the three year period following the valuation, the charter of the City of Montreal provided for a fresh valuation taking into account those changes. Again, at the end of the three years, if the situation had been modified, there was then the opportunity to modify the valuation accordingly. But, for the valuation which had to be made and which is now the subject of the litigation, the property had to be taken as it stood then and as it was used and occupied.
The parties agreed on certain admissions showing the gross rental receipts for each tenant and each floor, including the basements, for the year 1941, being the material year. By these admissions the yearly rental actually charged to the company for the years 1937-1941 inclusive, as appears in the books of the Company, in the Company's annual statements and in statements supplied to the Superintendent of Insurance for the Dominion of Canada, for the floor space occupied by it per floor, was established. The amount shown, therefore, establishes the rental value for the year 1941, with which alone the assessors were concerned in their valuation. In turn, such rental value enables one to find the commercial value of the building, or, to adopt another expression which was used throughout the case, to estimate the price which a prudent investor would have been willing to give for the purchase of the property. An increase in rents in the City of Montreal might mean a higher rental value, but that would be the concern of the assessors who would have to render a decision at that time. For the moment, the assessors and the Court cannot be concerned with any other value than that of 1941. It is on such a basis that the judgment in this case must be arrived at.
Now, it is evident from a reading of the record and the opinions expressed by the many experts who were heard, that there is far from being an agreement on the approach that should be made to reach a proper valuation in these matters. Some speak of market value, but there is a general consensus of opinion, in the circumstances, that this cannot form the basis of valuation here, as everybody, witnesses, experts, assessors, Board of Revision, judge of the Superior Court, and judges of the Court of King's Bench, state most positively that the Sun Life building now in question is unique and that there is no comparison between it and any other building in either the City of Montreal or the immediate vicinity. We were invited to apply certain dicta of a United States court in a judgment dealing with the Federal Reserve Bank of Minneapolis, in the State of Minnesota. I do not find it necessary to pause to consider such a judgment dealing with a property several thousand miles from the one which we are now considering. Counsel for the respondent in the case at bar stated several times in the course of his argument that one way to estimate the value of the Sun Life property would be to look at the valuation of comparable buildings. Of course, that should first mean comparable buildings in the City of Montreal, or the neighbouring country. But I have been so far unable to understand how a comparison of that kind could be helpful. It cannot assist the Court in reaching a conclusion because, of course, that would assume that the so-called comparable buildings have themselves been correctly valued by the assessors. And the Court really does not know anything about those buildings in that respect, more particularly because the owners of such buildings have not been heard in this case. At all events, the evidence is clearly to the effect that there is no building in Montreal comparable to that of the appellant. (Grampian Realties Co. v. Montreal East 4).
Moreover, if there is one basis upon which we should be clear as to the method which should be followed for municipal valuation purposes, it is the one which is recognized by the assessors themselves in the memorandum prepared by them on the assessment of large properties. It states:—
Each property will have to be considered on its merits within the limits outlined above. The Board of Revision expresses the same view as follows:—
The coupling of the word "real" with the word "value" indicates that real value is a fact, not an hypothesis. Because this conception of real value is overlooked or ignored, the means, the elements to determine the said real value are often taken for the value itself. Such elements are unlimited in number. They vary "ad infinitum" as the cases. There is no fixed rule to determine in what proportion every element must be taken into account and what importance should be given to any element in particular. The same element may have more importance in one case than in another. The law imposes on the asssessor the duty of finding the real value of an immoveable and of inscribing it on the roll, but does not in any way put any limit to the assessor's discretion in considering all the elements he thinks it advisable to consider in exercising his judgment and arriving at a decision.
The "limits outlined above", referred to in the memorandum of the assessors, (Ex. D-5) proceed to divide the properties such as office buildings, apartment houses, departmental stores, hotels, etc., into four main categories. They are as follows:—
(1) Properties that are developed and operated solely on a commercial basis as investment propositions.
(2) Properties that are completely occupied by their owners.
(3) Properties that are partly occupied by the owners and partly rented, among which the Sun Life property is specifically mentioned.
(4) In a separate category all buildings like theatres and hotels.
With respect to the properties in the third category, of which the Sun Life is said to be one, the memorandum proceeds to state that these properties have been constructed or acquired as a permanent home for the enterprise of their owners, and that frequently the building is laid out for future development, the tenant situation being considered only temporary or incidental. In these cases, the memorandum continues, the owner is enjoying the full utility only of the space occupied by himself and is dependent on current rental conditions for the carrying charges on the balance of the building; and it is mentioned that some consideration should be given to the rental value in these cases, so that the replacement factor should be weighted somewhere between 50 and 100 per cent, and the commercial value factor make up the difference between 50 per cent and zero. Then the memorandum goes on to say:—
No hard and fast rule can be given for the division of weight in these factors, as it will depend on the proportion owner-occupied, the extent to which the commercial features of the building have been sacrificed to the main design with a view to the future complete use of the building by the owner, or the enhanced prestige of an elaborate and expensive construction.
Admittedly such were the rules and the guiding principles followed by the assessors in the present case, and it is to that memorandum that we owe the idea embodied in the assessment herein of a certain percentage attributed to the replacement factor and another percentage attributed to the commercial value factor. In this instance the Board of Revision came to the conclusion, after a very complicated calculation, that the ratio of importance to be given to the net replacement cost should be 82.3 per cent and the ratio of the commercial value 17.7 per cent. Counsel for the respondent, in the course of the argument, was asked if a calculation of that kind for municipal valuation purposes was ever accepted in any Court of the province of Quebec and, of course, he could not point to any authority to that effect. Nevertheless, that was the yard-stick applied to the Sun Life property for its valuation by the Board of Revision.
I do not think that it is the function of this Court, acting as third Appeal Court, to proceed to a detailed calculation of what the valuation should be. In that view I am fully in accord with the reasons for judgment of Casey J.A. in the Court of King's Bench (Appeal Side) 5, and I adopt his reasons. Like him, I think that "the learned Justice of the Superior Court acted properly in intervening and in fixing the value of the Company's property, land and buildings at $10,207,877.00." I think the learned judge of the Superior Court succeeded in placing a true objective exchange value on the property and that the result he arrived at should be affirmed. As was said by Casey, J.A. the amount fixed by that Court more closely approaches the actual value of the property, as prescribed by the charter of the City of Montreal, and it should be allowed to stand.
The appeal should, therefore, be allowed and the judgment of MacKinnon J. should be restored with costs both here and in the Court of King's Bench (Appeal Side) against the respondent. The award of costs by the Court of King's Bench (Appeal Side) on the appeal to that Court of the Sun Life Assurance Co. of Canada should: not be disturbed.
Kerwin J.:—This appeal is concerned with (1) the assessment by the City of Montreal of the appellant's main office building and what is called a secondary building, containing the heating plant; (2) the annual rental value of the two buildings for the purposes of business and water taxes.
The main question is the first and as to it there is no dispute as to the assessable value of the land itself. Article 375 of the charter of the City of Montreal provides for the preparation, every three years, by the assessors, of a valuation roll in each ward of all the "immovables", which expression includes lands and buildings. The roll is to contain "the actual value of the immovables" and the controversy turns upon the method of determining that value or, as it is put in the French version "la valeur réelle des dits immeubles". The rule applicable in determining compensation in expropriation eases is not that to be followed in municipal assessment cases where the land and buildings are to be assessed at their value, or real value, or actual value. The test is an objective one which in many cases may be applied by seeking the exchange value or the value in a competitive market. If there is no such market, then one may ask what would a prudent investor pay for the subject of taxation, bearing in mind the return that might be expected upon the money invested.
The differences between the assessors and the Board of Revision need not be set out since the latter confirmed the amount of the assessment set by the former. Both, however, proceeded in the following manner: Taking the actual rents received by the Company and estimating the rents from other parts of the building available for tenants, and adding to that an estimate of what the Company should pay for the space occupied by itself, and deducting there-from the operating expenses, gives a net revenue which when capitalized resulted in a commercial value which may be taken as $7,028,623. The assessors and the Board then proceeded to fix the replacement cost of the buildings, which may be put at $13,387,131.80. Holding the view that there was no market and that both the replacement value and commercial value should be taken into consideration, it then became necessary, in their opinion, to take certain percentages of the above figures, which in the case of the assessors were put at 90 per cent of the assessed value and 10 per cent of the commercial value, and by the Board at 82.3 per cent and 17.7 per cent. The explanation of how the assessors arrived at their assessment appears in the evidence of one of them, Mr. Vernot, at page 556 of the Case, where he states:—
I think I will have to corroborate what Mr. Hulse said about the principles and methods agreed upon by the asssessors, and in commercial buildings, first, we agreed on 50 per cent replacement for strictly commercial buildings, and 50 per cent commercial value. When I say strictly commercial I mean a building designed and built for revenue purposes only.
When you come into the owner occupied building and renting part of it, we would have to balance the part of the building assessed for commercial purposes and the part assessed as owner occupied. In the case of the Sun Life it was 40 per cent tenant occupied in 1941 and 60 per cent owner occupied. The occupied space. So that would mean that the 50 per cent for commercial would be divided into 20 and 60. There would be another 30 per cent replacement cost added on the 50, to make it 80 and 20.
But as the revenues in this building were based on revenues of much cheaper buildings—the revenue of this building received no competition—I consider that half of the commercial value of 20 per cent, making it 10 per cent, would pay for the amenities and benefits received by the owner of the building.
On appeal to the Superior Court, Mr. Justice MacKinnon while arriving at a different total for the replacement value, took 50 per cent of that total and 50 per cent of the commercial value in order to arrive at an amount of $10,207,877.40 for land and buildings. The majority of the Court of King's Bench 6 restored the order of the Board but Mr. Justice St. Jacques and Mr. Justice Casey dissented as they would have affirmed the judgment of the Superior Court. Casey J. decided that the commercial value was the proper method of approach and that the net rental revenue at which he arrived, $432,957, would represent a yield of approximately 4.2 per cent on the figure found by the Superior Court. He considered that in view of the evidence of Mr. Vernot that the rate should be 3 per cent for an owner occupied building and 4 1/2 per cent for one that is tenant occupied, while Mr. Lobley and Mr. Simpson, for the Company, felt that a yield of 5 per cent was indicated, the figure of 4.2 per cent would not be far out of line. With those reasons and the result, I agree. While the Company sought to obtain a lower valuation on the basis of the evidence of its experts as to a possible purchaser, that evidence is not of such a character as to warrant it prevailing against the almost unanimous evidence of the commercial value.
I have not overlooked the fact that in the Company's annual general statements and in its returns to the Superintendent of Insurance for Canada for the years 1914 to 1941 inclusive, sums of a like amount appeared under the headings "book value" and "market value", which represented actual cost less depreciation. Much was made by the respondent of this fact. Whatever bearing the figures might have when related either to the annual statements or the returns to the Superintendent of Insurance, they cannot, I think, affect the duty of the assessors and of the Board and of the Courts in fixing the value of the Company's immovables for the purposes of municipal taxation.
There remains the City's contention that the assessors and the Board of Revision proceeded In accordance with a memorandum adopted by the asessors at a meeting held at the suggestion of the Board, and that failure to adhere to that memorandum would result in discrimination. The assessors must, of course, proceed so as to cause no discrimination but it is also their duty to see that every ratepayer is assessed for its immovables at their actual value. Where it is demonstrated, as is the case here, that by attempting to use the formula of the memorandum the result arrived at is not such value, then the formula must be disregarded.
As to the second point in the appeal—annual rental value—the appellant has not convinced me that all the judges were wrong and that item should therefore stand. The appeal should be allowed to the extent indicated, with costs, and the judgment of MacKinnon J. restored. The appellant is entitled to its costs in the Court of King's Bench in the appeal of the City of Montreal, but should pay the costs of its own appeal in that Court; the cost of printing the case in the Court of King's Bench should be borne equally by both parties.
Taschereau, J.:—The appellant is the owner of a large office building situated on Dominion Square, in the City of Montreal and which occupies an entire city block from Metcalfe to Mansfield Streets on Dorchester Street. From Dorchester Street, it extends northward for approximately one half of a long city block. Part of this building is occupied by the Company itself as its head office, the remainder being rented on a commercial basis to a large number of business tenants.
The appellant is also the owner of a boiler house situated on Mansfield Street, where is located the heating apparatus. The office building and this boiler house, together with the emplacements whereon they are erected, were placed" on the municipal valuation roll deposited by the assessors of the respondent on December 1st, 1941, at the respective valuation of $13,755,500 and $520,500. The appellant was also assessed in respect of its occupancy of the main building, at $423,280 for water tax purposes, and at $421,580 for business tax purposes. In the case of the boiler house, the assessment was placed at $26,000.
The appellant feeling that it was aggrieved by these valuations, appealed to the Board of Revision of the City of Montreal, and contended that the true and proper valuations of the said buildings should be $8,330,600 and $102,600 respectively. The valuations placed on the land in both cases (viz: $520,500 and $74,100) were not challenged, but the appellant also appealed regarding the assessed rental value for business tax, claiming that it should be reduced to $352,035. It also asked that the assessment of the rental value of the boiler house, fixed at $26,000, should disappear. During the hearing before the Board, the respondent submitted by counter-appeal that the combined assessment of the main building and boiler house should be increased to $15,651,100. The Board refused this increase, but maintained the assessment as made by the assessors, subject to consolidation of the boiler house assessment with that of the main building, with the result that the annual rental valuation of the boiler house disappeared. The Board also dismissed the complaint against the assessment of the annual rental value on the roll.
The appellant then appealed to the Superior Court, under the provisions of the City Charter. Mr. Justice Mackinnon sitting in that court, reduced the assessment of both properties, including land, to $10,207,877.40, but refused to disturb the Board's decision as to the annual rental value. He therefore allowed in part the appeal of the Company with costs against the City of Montreal.
Both parties then inscribed the case before the Court of King's Blench of the Province of Quebec 7, which, Messrs. Justices St-Jacques and Casey dissenting, allowed the appeal of the City of Montreal with costs, dismissed the appeal of the Company also with costs, and restored the decision given by the Board of Revision. The appellant now appeals to this Court.
A brief account of the erection of this massive cubical designed building, which rises twenty-five storeys above the ground, is I think useful for a better understanding of this case. It was erected in three different stages. The first building, which now constitutes the southwest, or Dorchester and Metacalfe corner, was commenced in June, 1913, and completed in March, 1918. It was intended to be the head office of the Company. Although a comparatively small building of five or six storeys, occupying only one-sixth of the ground area of the present structure, it was made of very costly materials. The second stage of construction consisted in approximately doubling the size of the original building by extending it east, along Dorchester Street to Mansfield Street, and adding two storeys. This was commenced in the Summer of 1922 and finished in December, 1925. Finally the third stage, during which the great bulk of the existing structure was added, started in May, 1927, and it was only in December, 1930, that it was nearly all completed. Only a number of upper floors were not finished for occupancy by tenants at that time, nor completed until occupancy was from time to time, thereafter contracted for. At the time of the 1941 assessment, which is now in issue, approximately 14 per cent of the rentable space in the building was still unfinished and, therefore, unoccupied. Its cost up to April 30th, 1941, was $20,627,873.92, excluding the cost of the land and taxes and interest during construction, and the amount spent from April 30th, 1941, to December 1st of the same year, the date of the roll, was $58,713.70. The cost of the boiler house which was commenced in November, 1928, and ready in March, 1930, exclusive of the land and of interest and taxes during construction, was $709,257.14 plus $154 spent in 1938. The cost of the land, as given by the Company to the assessors, was $1,040,638.20. By adding together the above mentioned amounts, we come to a total of $22,436,636.96.
In 1930, the respondent's assessors placed these properties on the valuation roll of the City of Montreal for the tax year 1931-1932, at $12,400,000, but the present appellant appealed from such assessment to the full Board of Assessors under the provisions of the City Charter then in effect, and the appeal being allowed, the assessment was reduced to $8,000,000. During the ten years which followed, up to 1941, this figure of $8,000,000 was increased annually by amounts corresponding to the sums from time to time expended by the appellant on completion of interior floors as the same were occupied by tenants, and for the year immediately preceding the assessment now in issue, the property stood on the City valuation roll at $9,986,200 and it is from the sudden increase to $13,755,500 that the present appellant now complains. The assessment of the boiler house and land occupied by the appellant had likewise remained constant throughout the same period, at a total of $225,000 and by the assessment now under attack, this sum was increased to $520,500. These increases represent approximately 40 per cent for the office building and approximately 135 per cent for the boiler house. It must be noted that the land valuations were not increased, but on the contrary, slightly reduced, and it follows that the percentages of increase on the buildings as distinguished from the total included in the land, were even greater. The overall increase of the appellant's property affected by the assessment under attack was, therefore, of $4,064,000, and the overall assessment was $14,276,000.
At the same time, the annual rental value of the space occupied by the Company in its building, was increased from $357,280 to $423,280 for water tax purposes and $421,580 for business tax purposes. In 1940, before the valuation of the properties now in question was made, the assessors of the City of Montreal prepared a "Memorandum" laying down certain rules concerning the assessment of large properties in Montreal, as office buildings, apartment houses, departmental stores, hotels, etc. These properties were divided into four main categories in order to determine the relative importance of the various factors used in arriving at their valuation.
The category with which we are concerned, is the third, and it includes properties that are partly occupied by the owners and partly rented. The "Memorandum" indicates that in order to determine a proper valuation, the replacement and commercial values have to be taken into account, but the replacement factor should always be weighed somewhere between 50 per cent and 100 per cent, and the commercial factor between 50 per cent and zero. This "Memorandum" was produced as exhibit and with it was also produced a list of properties, the valuations of which have been made in accordance with those directions. It appears that in assessing the Sun Life Building, the assessors have thought that the replacement factor should be 90 per cent, and the commercial factor 10 per cent.
Mr. George E. Vernot was the City assessor who made the assessments now challenged. The method followed by Mr. Vernot to value the main property was the following:—
He took the total cost of both properties as at the 30th of April, 1941, which as reported by the Company was $22,377,769.26. From this figure, he deducted the amounts paid for the erection of the boiler house, the construction of the sidewalks, the price paid for the land of both properties, the costs of the temporary partitions during the construction and of the parts demolished to connect the new buildings. These various amounts totalling $4,269,393.72 were then substracted from the total costs, leaving a balance of $19,108,375 for the main building alone, without the land. He then adjusted the cost of replacement to the 1941 figure, using the index of 1927-28-29-30, when most of the money was spent, and having found the difference to be $1,471,344 which he subtracted, he reached a figure of $17,637,031. He allowed 5 per cent for presumed extra cost, as the building was erected in three units, viz: $881,851, giving a balance of $16,755,180. He figured the depreciation at $3,081,202 and came to a final figure of $13,673,978 as being the cost of the main building in 1941, after depreciation and without the land.
His next operation was to add to this last figure $730,600 value of the land, giving a total replacement value of $14,404,578.
The commercial value of the property was also considered by Mr. Vernot. By capitalizing at a rate of 15 per cent, the total revenue of the property which he figured at $1,187,225, he thus gave to the property an economic value of $7,915,000.
Then in order to apply the principles enunciated in the Memorandum, he reached the conclusion that the factor "replacement value" should be 90 per cent, and the commercial factor 10 per cent. By taking 90 per cent of $14,404,578, he obtained $12,964,120 and 10 per cent of $7,915,000, gave the figure of $791,500. His final operation was to add both these figures, subtract the value of the land, with the result that, in his opinion the "real value" of the main building alone, is $13,024,900, or $13,755,500 with the land. To this figure, he added the amount of the valuation of the boiler house, including the land, $520,500, making a grand total of $14,276,000.
When the case was heard by the Board of Revision, Mr. Vernot explained as follows how he arrived at 90 per cent "replacement" and 10 per cent "commercial":—
We decided that on the large buildings in our Wards that were rented, totally rented, we took into consideration 50 per cent commercial value and 50 per cent replacement value; that is where the building was built solely for commercial purposes and occupied solely for commercial purposes by tenants. Those that were occupied by owners we would take at 100 per cent replacement cost and nothing for commercial value. So the Sun Life happened to fall between these two categories. The total floor space occupied by the Sun Life and the tenants is given by their list and came out to be 60 per cent and 40 per cent.
Later in his evidence, he added:—
Q. Can you give us some more particulars as to the proportion between the 90 and 10? Do you conclude that 90 per cent must be given to replacement cost and 10 per cent to the commercial?—A. Yes.
Q. Why not 15 and 85, or 20 and 80? You could give me some explanations?—A. I think I will have to corroborate what Mr. Hulse said about the principles and methods agreed upon by the assessors, and in commercial buildings, first, we agreed on 50 per cent replacement for strict commercial buildings, and 50 per cent commercial value. When I say strictly commercial I mean a building designed and built for revenue purposes only. When you come into the owner occupied building and renting part of it, we would have to balance the part of the building assessed for commercial purposes and the part assessed as owner occupied. In the case of the Sun Life it was 40 per cent tenant occupied in 1941 and 60 per cent owner occupied. The occupied space. So that would mean that the 50 per cent for commercial would be divided into 20 and 60. There would be another 30 per cent replacement cost added on to the 50, to make it 80 and 20.
But as the revenues in this building were based on revenues of much cheaper buildings—the revenue of this building received no competition—I consider that half of the commercial value of 20 per cent, making it 10 per cent, would pay for the amenities and benefits received by the owner of the building.
The members of the Board of Revision accepted the method adopted by the assessors, but reached a higher figure because they reduced the adjustment cost to the index number 1939-40, and reduced also the amount of depreciation. They also applied the formula indicated in the "Memorandum" to the boiler house, which was dealt with separately by the assessors. They thought however that the "replacement" factor should be 82.3 per cent and the "commercial" factor 17.7 per cent. On account of these slight differences, they