Canada: Tenant Successful In Dispute Over Property Tax Allocation

As a result of legislative changes to Ontario’s property tax assessment system in 1998, the Municipal Property Assessment Corporation (“MPAC”) is no longer required to prepare separate assessments for individual leased premises in multi-tenanted properties. Rather, these properties are assessed at their “current value” and a landlord will receive a valuation summary for the entire property. In a commercial lease context, the fact that individual assessments are no longer available has forced landlords and tenants to look to the terms of their lease to determine appropriate allocation of property taxes in each instance. Often at issue is whether the parties can rely on these valuation summaries or “assessor’s records” as if they were separate assessments. A number of cases on this topic have ruled that assessor’s records do not constitute separate assessments.

However, in Terrace Manor v. Sobeys1, a recent trial decision of the Ontario Superior Court,  P.J. Flynn J. held that valuation records produced by MPAC constituted “official” information for the purposes of the lease provisions governing the tenant’s tax payment obligations.

The Facts

Sobeys Capital Incorporated (the “Tenant”) leased a retail grocery store in a plaza owned by Terrace Manor Limited (the “Landlord”). The lease started in 1993 and provided that, if no separate assessments were available, the parties would use “their reasonable and diligent efforts to have such separate assessments made, or, failing that, to obtain sufficient official information to determine what such separate assessments would have been if they had been made”. The lease went on to provide that the Tenant’s share of realty taxes would be “determined by the Landlord acting reasonably and equitably allocating a portion of the Taxes levied, rated, charged or assessed against the Shopping Centre to the Premises having regard to the generally accepted method of assessment and applicable elements utilized by the lawful assessment authority in arriving at the assessment of similar developments”.

During the first 5 years of the 10 year lease, the Tenant paid taxes based on the separate assessments received from MPAC. After the 1998 taxation year, the Landlord argued that because separate assessments were not available, the Tenant must pay a proportionate share of the total taxes for the plaza. The Tenant argued that the valuation records from MPAC were “official information” such that the parties could determine what the amount of a separate assessment would have been. 

The Decision

In finding that the MPAC records constituted “official information” for the purposes of s. 5.2 of the lease, Flynn J. noted that the valuation records contained all of the necessary information to determine how the current value was calculated and that the records were used for official purposes such as vacancy rebates and other property tax rebates. He wrote that “[t]he assessing authority's data is the data relied on by all municipal taxing authorities to impose taxes and is precisely the data being contemplated by section 5.2(a) of the [l]ease”.2

This case was distinguishable from previous cases such as Zellers3 where the judge found that assessor’s records do not constitute assessed values for the purposes of the lease.  As Flynn J. points out, the role of the judge is to determine what the reasonable intentions of the parties were at the time of making the contract. In this case, the lease was negotiated in 1993, five years before the law changed, and specifically contemplated a situation where separate assessments are not made.


As a takeaway, parties should keep in mind that should a dispute go to trial, the judge will need to ascertain the reasonable intention of the parties. The use of clear language in drafting will facilitate the resolution of such disputes.


1. 2012 ONSC 2657

2. Ibid. at para. 45. 

3. Orlando Corp. v. Zellers Inc. (2003) 66 O.R. (3d) 535 (Ont. C.A.)

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.

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