Contestation of the 2012 Assessment Roll

August 31, 2013

The April 30th deadline for submitting an application for review of assessments for the 2012 roll (2012-2013-2014) is fast approaching.

Lessees: Make sure you have received your landlord’s real estate tax account; if you haven’t, get it directly from the Municipality.

Owners: Start analyzing the amount of your assessment, not just in terms of the percentage increase since the last assessment, but in reference to the market value of your property on the reference date, i.e. July 1, 2010.

Below is a non-exhaustive list of municipalities whose triennial roll takes effect in 2012.

Major municipalities having a three-year roll beginning in 2012
(Non-exhaustive list)

  • Baie-Saint-Paul
  • Chelsea
  • Cowansville
  • Drummondville
  • Gaspé
  • Gatineau
  • La Tuque
  • Rawdon
  • Rosemère
  • Sainte-Adèle
  • Saint-Hippolyte
  • Sainte-Marie
  • Saint-Sauveur
  • Val-des-Monts
  • Lavaltrie

Separate assessment clauses in commercial leases

When the lessee and the lessor negotiate the terms of a commercial lease, a lot of attention is paid to the financial terms, such as the base rent, additional rent and operating costs. It is often only after the lease has been signed that the lessee realizes that the real estate tax-allocation provision results in a significant part of the lessee’s occupancy cost, and is difficult to manage on an ongoing basis.

Unfortunately, such tax-allocation provisions in leases all too often refer to a separate assessment of the leased premises established by the assessor. To the extent that the leased premises are separately assessed by the assessor, the lessee’s share of real estate taxes is calculated in accordance with the ratio of the municipal assessment of the leased premises to the overall assessment of the entire property. In the event that no such separate municipal assessment is made, a relatively sophisticated mechanism is provided for in order to determine the lessee’s proportionate share. Some of these mechanisms refer to the assessment method used by the assessor, others to generally recognized assessment principles, others to the parameters used by the assessor, etc.

It must first of all be noted that in Québec there have never been separate assessments for units in a shopping mall or office complex. The Municipal Taxation Act (“MTA”) provides that only such units of assessment as shopping centres, power centres and office buildings are to be entered on the roll. Thus, as there are no separate assessments of sub-units, the primary mechanism in the lease for determining the lessee’s proportionate share of real estate taxes can never be applied. This is an unfortunate instance of an importation from Ontario of an assessment method that was actually discontinued there in 1998. So, why accept a clause in a Québec lease that can only lead to misunderstanding and confusion?

Furthermore, alternative mechanisms for determining the lessee’s proportionate share of real estate taxes, such as those that refer to the method used by the assessor or to the information contained in the municipal file, are extremely difficult for the lessee to apply. This is because only the property-owner can access the information concerning the assessment of the entire unit of assessment. Thus, the lessee can only see either the overall financial data for the entire property, or the data specific to its portion of that property. This restriction is in place in order to preserve the confidentiality of the revenues and expenses of the property’s other tenants.

In the past, some lessees tried to access all the information on the municipal file regarding the unit of assessment, in order to analyze and potentially contest it through an application for review. The courts, however, decided that since the lessee is an interested party that could make an application for review and then appeal that review to the Tribunal administratif du Québec, it could only have access to data specific to its portion of the property. The MTA has since been amended to expressly provide that the occupant of an income-producing property can have access to a document prepared by the assessor that concerns only that part of the unit of assessment where the lessee’s premises are located, provided the information concerning the other tenants has been blacked out or otherwise made unavailable.

If the lessee is unable to obtain the lessor’s consent to access the complete municipal file, even where the lease contains a tax-sharing provision that makes direct reference to that assessment file, then the lessee will only have access to such partial information as the municipality deigns to give it, without being able to verify whether that information was used “as is” in determining the property assessment for tax purposes. For it must be remembered that the assessor may have adjusted some data that was deemed to be non market.

Another difficulty stems from the fact that lessors often wait before sending lessees the actual tax bill, and base the first few monthly payments on estimates. This usually results in the tax bill being sent to the lessee after the deadline for contesting the assessment of the unit of assessment (i.e. April 30th of the first year of the triennial roll). In such situations the assessor has no obligation or incentive to intervene in the determination of the revenue portion attributable to the leased premises in question.

If, on the other hand, the lessee had had access to the assessment of the property and the municipal file before the deadline for submitting an application for review, the lessee could have put pressure on the lessor to contest, or submitted its own application for review in order to have the overall assessment of the unit of assessment – or at least the lessee’s proportionate share – reduced.

A prudent lessee will stipulate in the lease that the lessor must, upon receipt of the tax bill, provide it with a copy thereof and also give it access to the data in the municipal file. Should the lessor fail to provide the data, the lessee, in order to alleviate the situation, would be well advised to consult the information available on the Internet in order to learn the amount of the new assessment of the property where the leased premises are located, and then take all appropriate actions by April 30th.

In this context, as in so many others, it is better to ensure at the outset that the terms and conditions of the contractual relationship between the parties are crystal-clear, in order to ensure that relations between lessor and lessee are as harmonious as possible. As leases of this type can be for very long periods, all due attention should be paid to each and every one of their provisions, even those that at first blush appear to be of secondary importance.

Prevention is better than cure.