Income properties: how BC Assessment values them

What the Act says

"Actual value" means "the market value of the fee simple interest in land and improvements" (Assessment Act, s. 19(1)). To set it, the assessor may consider present use, location, original cost, replacement cost, revenue or rental value, the selling price of the property and comparable properties, obsolescence and any other circumstance (s. 19(3)). Where a business is carried on, the land and improvements it uses must be valued as the property of a going concern (s. 19(4)).

The date does not change: value as of July 1 of the previous year, physical condition as of October 31 (s. 18). See deadlines and key dates.

The income approach, step by step

PAAB's commercial guide explains the income approach: it estimates a property's value from the income it can generate. If your property could produce rent, BC Assessment may have valued it this way. The steps PAAB describes:

• Economic rents. Value rests on market rent. PAAB notes that "the economic rent may not necessarily be the actual rents you are receiving".
• Vacancy allowance, for long-term vacant units or space.
• Expense allowance for expenses not recovered from tenants.
• Net operating income (NOI): gross income from all sources, less vacancy, less expenses.
• Capitalization rate, drawn from sales of similar properties whose income and expenses are analyzed.
• Value = NOI ÷ capitalization rate.

Residential rental buildings

BC Assessment publishes a policy for single-title rental apartment buildings: those with four or more units (three or more in Vancouver). It calls for valuation by capitalized net operating income, except where the data to support it is not available (then direct comparison or cost) and where the current use is not the highest and best use. Rents, vacancy rates, expense rates and capitalization rates must be reviewed every year. The unit of measure is monthly rent by bedroom type.

The same policy calls for requests for information to be sent every year, the "Income and Expenses mail out". It places these buildings in class 1, except non-residential areas and short-term overnight accommodation, which typically go to class 6. BC Assessment notes that the policy is published for information only and is not binding on it.

Fictional example, to illustrate the arithmetic only: an NOI of $100,000 and a fictional capitalization rate of 5% give 100,000 ÷ 0.05 = $2,000,000. A rate of 5.5% would give about $1,818,000. These figures are neither averages nor real rates: they show why the chosen rate matters so much.

Income and expense requests

BC Assessment cites sections 15 and 16 of the Assessment Act as its authority to ask owners for information. Section 15 lets it require information by written notice within 21 days, or a longer period stated in the notice. Failing to provide it is an offence (s. 15(3)), with a fine of up to $10,000 (s. 71). The assessor is not bound by your figures: if there is reason to doubt them, it may assess as it believes correct (s. 15(4)). Providing false or misleading information is also an offence (s. 70).

In return, the Act protects this information: it may only be disclosed to administer the Act, in proceedings before a review panel, PAAB or a court, or to an agent the owner has authorized (s. 16(3) and (4)). Accurate, complete figures also help you: they are the basis for any discussion if you appeal.

The class: a question of use, and of fees

BC Assessment places each property in one or more of nine classes, based on its type or use. Classification follows actual use on October 31, PAAB notes. Class 1 covers property used for residential purposes, including duplexes, multi-family residences and apartments, but not hotels and motels, except the owner's or manager's residence. Class 6 takes everything not in another class; according to PAAB, most office, retail and warehouse properties are there. A property with several uses is split between classes according to each share of value (Prescribed Classes of Property Regulation, s. 10).

The evidence that counts for a rented building

PAAB lists the useful documents: the rent roll (lease particulars) and income and expense statements, which BC Assessment may ask you for. It also asks pointed questions: what rents are you receiving, on net or gross leases? Were there new leases or renewals in the past year, which are usually better indicators of economic rent? What could you have charged for vacant space around July 1? What are competing buildings charging?

For a commercial property, BC Assessment provides the Property Value Summary free to the owner, the owner's agent or lawyer; it summarizes detailed valuation information such as vacancy rates. One argument to avoid: PAAB warns you are unlikely to succeed by showing that a single input differs, such as a 4% capitalization rate on your property against 4.5% elsewhere. Equity compares the total assessment. See also evidence that works.

When a designated appraiser (AACI) helps

This is where a professional is most often useful. PAAB says that stabilizing the income and expense figures of sales, needed to calculate a comparable capitalization rate, "is usually done by a professional appraiser". It also notes that in commercial and industrial appeals, parties often hire appraisers or legal counsel. The Appraisal Institute of Canada's AACI designation covers all property types.

Two practical PAAB rules. An appraisal report must be provided to the Board, with a copy to the other side, by the first submission deadline. And PAAB aims to complete most commercial and industrial appeals by March 31 of the year after filing. To find a verified appraiser, see our appraiser directory. Payotte promises no outcome. Back to property assessment in British Columbia.

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