March 5th - 2013

Legal Beat: Property tax dispute leads to appeal court

The owner of a Toronto apartment building appealed his property tax assessment. Before the city made a decision on the taxes, he sold the property.

The owner of a Toronto apartment building appealed his property tax assessment. Before the city made a decision on the taxes, he sold the property. He continued to pursue the appeal and was ultimately successful when the city agreed to a reassessment. The property was reassessed in November 2008, and the city decided that a refund of $251,166.43 was owed for the period from 2003 to 2006.

The city paid the refund to the buyer. It did so because the City of Toronto Act, 2006, provides that property tax refunds are to be paid “to the owner of the land as shown on the tax roll on the date the adjustment is made.”

Who is entitled to the refund – the seller or the buyer? The lower court judge decided that the act gave the buyer a juristic reason to retain the refund. (A juristic reason is an explanation based upon law for the enrichment of one to the detriment of another.)

The previous owner appealed this decision. The Court of Appeal noted two ways in which the right could pass to the buyer on closing: under the terms of the agreement of purchase and sale (APS), or as a result of the operation of real property legislation. Immediately prior to closing, the seller had the right to proceeds from the tax appeal.  But what kind of property right is it? Is it a right that attaches to the land, or is it a personal right belonging to the seller?

Previous decisions have viewed this right as a chose in action, (a legal term referring to the right to bring a lawsuit to recover money), and not one that accompanies the land. An assessment appeal is a chose in action that is not assigned by operation of law. Instead, that right must be expressly assigned if it is to pass from seller to buyer. For legal assignment to occur, the seller would have had to specifically assign that right to the buyer in writing.

The act’s previous language – “the city shall refund any overpayment” – is vague and relieves the city of responsibility for determining who is entitled to the refund. Although the act’s stated purpose is to “streamline processes” related to the tax roll, it appears that the language makes for administrative convenience for the city. Its responsibility is limited to paying the refund to the owner, as shown on the tax roll on the adjustment date. Any entitlement dispute is thus between claimants and not between one or more claimants and the city. The act does not affect ownership rights nor does it purport to.

The appeal court reversed the lower court’s decision, giving the refund of $251,166.43 to the seller, who owned the building from 2003 to 2006. Since the property was sold on Oct. 19, 2006, the seller agreed that the buyer should receive the post-closing portion of $22,397.11.

80 Mornelle Properties v Malla Properties, 2010 ONCA 850

MERV’S COMMENTS
The seller overpaid taxes on the property when he owned it. Moreover, it was the seller who took steps to have the property taxes reassessed. The right to proceeds from the assessment appeal was a chose in action, and in this case a personal right belonging to the seller. That right did not run with the property. Since the seller never assigned that right to the buyer, the seller is entitled to the refund. The City of Toronto Act, 2006, does not amount to a juristic reason entitling the buyer to keep the refund. If buyers want a right to refunds for periods prior to their ownership, they must negotiate for this and it must be set out clearly in the APS.

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