The Supreme Court of Newfoundland and Labrador Court of Appeal held that s.17 of the Assessment Act, RSNL 1990, c. C-44 [the “Act”], required the municipal assessor to take into account the special lease restrictions imposed on the Gander International Airport Authority [the “Authority”] when assessing the Gander International Airport [the “Airport”] for taxation purposes. Section 17(1) of the Act mandates an assessor to assess property at its fair market value.
Justice Welsh first dealt with a gap in s.44(2) of the Act, holding that a review of the assessment review commission’s decision should “proceed by way of inquiry into the matter anew,” rather than by way of judicial review of the commission’s decision [9]. The Authority leased the Airport from the federal government in 2001. The lease contains severe lease restrictions, requiring the Authority to operate an airport that, in 2001, “was not financially or economically viable”. Where the Crown leases property to a tenant, s.13 of the Act requires the property to be assessed as if the tenant were the owner. This, according to the majority, meant that the lease restrictions must be accounted for when determining “fair market value” under s.17. The court went on to hold that the proper approach to determining fair market value is to first identify the market, even if it is a hypothetical one, and then to consider the proper method of valuation. In identifying the market for a public amenity under strict restrictions, the court held that in addition to the lease restrictions, the fact that public utilities are often exempt from taxation, due to their social utility and limited revenue generating abilities, should be taken into consideration. Ultimately, the court held that where no alternate use is possible, a willing buyer in an open market would not offer more than a nominal amount.
Dissenting, Justice Barry cautions that the majority decision “risks creating doubt regarding the established approach to valuation for assessment purposes, which recognizes that a tenant’s interest must be valued as though the tenant were the owner.” Accordingly, the land in this case should have been valued, “not as a mere interest under a restrictive ground lease but as an interest in fee simple”. The government is entitled to take possession of the property in the event that the Authority defaults. In this situation, the property would have value to a subsequent entity mandated to operate a major international airport at Gander. Therefore, the hypothetical market, though limited, exists. Furthermore, Justice Barry felt that the obligation to continue the operation of an airport distinguished this case from the public amenity cases.
October 4, 2011
Link to Decision
Steve Holinski & Katerina Svozilkova
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