In this issue:
- Property Tax Reassessment & 2012 Year-End Matters (Ontario)
- Spotlight On Security Documents: The Tenant's
Acknowledgement / Estoppel Certificate (Alberta)
PROPERTY TAX REASSESSMENT & 2012 YEAR-END MATTERS (ONTARIO)
By: David C.K. Tang
This article is published as businesses and individuals try to wind down for the end of December. It suggests that you consider one additional matter: your property taxes. December 31, 2012 is the deadline for dealing with at least one property tax issue that you may have put off until now. As with most property tax deadlines, failure to meet a deadline can be absolutely final, and fatal with respect to 2012 taxes. Also, the year-end is a good time to look at possible appeals and applications that need to be made in the first quarter of 2013, particularly since this is the start of the next four-year assessment cycle which is based on the value and tax classifications recently determined by the Municipal Property Assessment Corporation (MPAC).
2012 Tax Year Tax Exemptions
While the deadline for appealing the assessed value or classification of a property to the Assessment Review Board (ARB) for 2012 taxes has long passed, exemptions from taxation can still be sought. However, the required court application must be made by the end of the year. An exemption is likely of the greatest interest to not-for-profit organizations, charities and others, who may have been entitled to such an exemption. December 31, 2012 is the deadline for seeking this exemption and the return of any taxes that were wrongfully levied and paid in 2012.
Please recognize that failure to bring an application for 2012 taxes by December 31, 2012 is fatal, with no possibility of an extension. A court application must be commenced and issued by the court no later than December 31, 2012. Of course, consideration of the case and preparation of the Notice of Application will take some time, so practically, any organization interested in determining whether an exemption or even a reduction can be obtained will need to contact us very soon.
The Recent Reassessment and the New Four-Year Cycle
In Ontario, municipalities have just finished collecting taxes based upon the assessments in play during the current assessment cycle which phased in assessment increases between 2009 and 2012. A property's taxes had been based on its market value as of January 1, 2008.
Over the last several months of 2012, most landowners received Notices of Assessment for the next four-year cycle: 2012 to 2016. This cycle values property as of January 1, 2012 and, once again, the increase over the 2008 value is to be added in 25 per cent increments between 2013 and 2016. Taxes in 2013 to 2014 will be based upon the results of this recent reassessment. There will be an increase in property valuations in most cases. To the extent that the increase in the value of a particular property is greater than the average percentage increase for other properties within the same property class in that municipality, that property's taxes will increase. Any changes in the classification of the property or any large changes are also worth reviewing.
The Assessment Act provides that a complaint to the ARB for commercial and industrial properties must be made no later than March 31, 2013. Failure to appeal is fatal, and a property owner or tenant will have no opportunity to revisit the 2013 property taxes. The next several months are the time for property owners to consider whether, in their particular circumstances, an appeal of the new assessment (technically, a complaint) makes sense.
Owners will have, however, an opportunity to appeal this assessment cycle's value again for 2014 taxes, but no recourse against 2013 taxes will be available after March 31, 2013.
We want to remind tenants that they may also have a right to appeal the property's assessment.
Properties in the residential, farm or managed forest property classes may not be directly appealed to the ARB. Instead, a request for reconsideration to the MPAC must be made by March 31, 2013. An appeal to the ARB may only be made 90 days after the MPAC has provided notice of its decision or has advised that it will not be making a decision by September 30, 2013. There is then a 90-day period within which an appeal to the ARB must be made.
Commercial and industrial properties (along with all others) can be appealed directly to the ARB. The next several months are however the time to consider whether a request for reconsideration or a direct appeal is most appropriate. Even if your property is in the commercial or industrial property classes and no Request for Consideration is needed to entitle you to appeal the assessment, there are reasons to seek a reconsideration and to submit your complaint as soon as possible. If the correction can be made quickly, the municipality's tax roll will reflect this correction prior to tax bills being issued in 2013. While you would be entitled to a refund of those excess taxes eventually, it is usually desirable not to pay them in the first place.
If a landowner received an Omitted or Supplementary Assessment for new construction or some portion of the property that was simply not assessed in the past, an appeal must be made within 90 days of the mailing date of that Notice of Assessment, or March 31, 2013 whichever is later.
Vacancy and Charitable Rebates
Applications for rebates need to be made early in 2013. The earlier those applications are made, the sooner the rebates will be processed. We recommend that you consider making your rebate applications as soon as possible, notwithstanding the actual deadlines.
Tenants – Impacts on Additional Rent from Year-End Tax Matters
Tenants who are responsible for paying their proportionate share, or some share of common expenses for the building in which they are located may find that their additional rent should have been reduced because their landlord sought and obtained a refund of taxes for vacant areas within that building or some other form of tax relief. Tenants who are aware of vacancies in their buildings or tax relief being provided to their landlord should review their leases to determine whether they should receive a refund on their additional rent.
Tenants should consider whether their occupancy entitles their landlords to a full or partial exemption from tax and whether the taxes they have been paying as part of their Additional Rent could be reduced by taking proactive steps. Similarly, landlords should consider whether the new assessments justify changes to how they collect rent. The provisions of an existing lease will of course be important, so coordination between their leasing lawyers and property tax lawyers is crucial when looking at property tax opportunities.
SPOTLIGHT ON SECURITY DOCUMENTS: THE TENANT'S ACKNOWLEDGEMENT / ESTOPPEL CERTIFICATE (ALBERTA)
By: Brian Twerdoff
Due to a lender's reliance upon the income streams associated with real property to be used as security in a commercial mortgage financing transaction, the leases that exist upon a borrower's property are the most important assets of that borrower next to the value of the land to be mortgaged. As those leases are a key element of the security taken by a lender in connection with a financing, a lender would do well to carefully assess their value in evaluating the risk associated with the financing transaction.
An Estoppel Certificate, also known as a Tenant's Acknowledgement or Status Statement, serves as independent verification to a lender of the terms and status of a particular lease of land from the tenant's perspective, enhancing a borrower's disclosure to a lender. Although they are not immune from challenges, these documents can serve to prevent a tenant from making claims in the future which are inconsistent with the certificate regarding matters that existed prior to the date of the certificate.
The strength of a borrower's leases will factor into the decision to provide financing and an Estoppel Certificate can assist in assessing a lease's value by providing a lender with a current snapshot of a lease, confirming its terms, parties and any outstanding current obligations. They bolster the disclosure of the borrower by revealing whether a landlord borrower is liable for items such as completing "Landlord's Work" and making payments to the tenant in the form of a tenant improvement allowance. This information can be used by a lender as a baseline in assessing risk and provide a window into the operational realities of the landlord/tenant relationship that are not discoverable by a review of the lease documentation and rent roll alone. This allows a lender to have a clearer picture of the revenue streams it can expect to receive in the event it must enforce its security.
Estoppel Certificates also give information to a lender regarding whether there have been defaults by the landlord or the tenant, whether options to extend the term or expand the premises have been exercised, and give an indication of the level of cooperation between the parties. They also allow a tenant to provide its perspective regarding the landlord's ability and willingness to satisfy its obligations.
Subject to the limitations contained in a particular lease, an Estoppel Certificate should typically contain the following provisions:
- Certification that the lease is valid, unmodified, in full force and effect and is presently in good standing
- A statement as to whether the tenant has accepted and taken possession of the premises
- Confirmation of the commencement date, the expiry of the term and any renewal rights the tenant may have
- A statement as to whether the tenant has sublet all or any portion of the premises
- An acknowledgement as to the basic rent for the term, whether there are any prepaid rent or security deposits and the date to which the rent has been paid
- Confirmation as to whether there are defaults under the lease by the landlord or the tenant that remain outstanding or uncured
- A statement that any improvements that the landlord is responsible for have been satisfactorily completed or, in the alternative, a list of outstanding items
- A declaration as to whether the tenant has any expansion, contraction, renewal, termination or purchase options and whether such options have been exercised
- A statement that there is no existing dispute, claim, set-off, defence or counterclaim by or against the landlord; and
- A statement that there are no allowances, incentives, inducements, or benefits or money owing or which may become due to the tenant under the lease
Overall, having a number of comprehensive Estoppel Certificates prior to closing will provide a lender with a level of enhanced disclosure of the details of its borrower's income stream and lease obligations to supplement and support its mortgage security package.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.