Whose Highest and Best Use Is It Anyway?
In an area that has come to be dominated by towering office buildings, condos, and retailers, 401 Richmond - a heritage property that provides affordable workspace to artists, cultural producers, and non-profit organizations - stands out as an anomaly. Founded by Margie Zeidler, it is owned and operated by her company Urbanspace Property Group - a social-purpose real estate developer whose philosophy is put into practice through 401 Richmond’s arts-enriched early learning centre, community courtyard, rooftop garden, and publicly accessible galleries and events.
But 401 Richmond’s future was called into question when a recent property assessment threatened an astronomical increase in taxes - from $446,689 in 2012 to $846,211 in 2017 to a whopping $1,286,800 by 2020.
The body responsible for this massive hike is the Municipal Property Assessment Corporation (MPAC), which, somewhat counterintuitively, is managed by the provincial government. Rather than determining taxes based on a property’s current use, MPAC uses its potential “highest and best use” as the basis for its calculations.
Although the term suggests some ambiguity - how does one objectively evaluate a property’s “highest and best use”? - MPAC’s definition leaves no room for confusion: once any physical and legal limitations on the property have been taken into consideration, “highest and best use” refers specifically to the form of development that will generate the maximum possible revenue. Obviously a building like 401 Richmond would be far more profitable as a 300-unit condominium than as a 4-storey arts and culture hub, but at what cost to our city?
Historically used to deter land speculation by imposing heavy taxes on vacant and underutilized properties, this system of assessment becomes problematic when applied to spaces and places that contribute significant non-financial value to their neighbourhoods.
After many months of tireless advocacy by Margie Zeidler, City Councillor Joe Cressy, MPP Han Dong, and many others, a new Creative Co-locations Facilities subclass was created as part of the efforts to save 401 Richmond - properties that meet its requirements are eligible to receive a 50% reduction in property taxes. The conditions of the subclass are very specific - for example, the property must have a minimum net rentable area of 5,000 square feet (or more in certain cases) and Creative Enterprises must comprise at least 51% of its tenants - so while several other buildings do qualify, they are few and far between. For starters, the Creative Co-locations Facilities subclass does nothing to alleviate “highest and best use” tax pressures faced by small businesses in Kensington Market.
While this was unquestionably a victory for 401 Richmond, in many ways it is a band-aid solution that fails to address the issues inherent in “highest and best use” property appraisals. Councillor Joe Cressy himself acknowledges that “fundamentally, we have an assessment model that discourages many of the types of diverse and unique and historic uses that we want to see retained and we want to see thrive in a city.”
Unfortunately we seem to be engaged in a perpetual battle to preserve community assets through exceptions, when what we need to do instead is rewrite the rules altogether.
Cressy is actively working on solutions to this problem and was involved in a proposal to cap annual tax increases on commercial properties at 10% in the coming year, a recommendation that was recently adopted by City Council. Aimed at supporting small businesses like the raw food vendors, thrift stores, and other independent retailers that make up Kensington Market, the cap will provide temporary relief for tenants who were facing much more significant increases based on MPAC’s assessments.
A few other alternatives stand out to me as well:
Tax-Geared-to-Revenue: Doug Simpson of NetGain Partners, a Toronto-based arts management consulting firm, proposes a similar idea in a blog post critiquing the new Creative Co-locations Facilities subclass as a superficial response to the underlying issue. Similar to the rent-geared-to-income approach to subsidized housing, tax-geared-to-revenue would ensure that non-profits, social enterprises, and small businesses are not saddled with prohibitive property tax bills.
B Corp Minimum: B Corps are companies that meet rigorous standards of “social and environmental performance, public transparency, and legal accountability to balance profit and purpose”. Businesses can apply to become verified B Corps (and in fact, Urbanspace Property Group is one). While the certification showcases a company’s commitment to positive impact, it would be interesting if our municipal and provincial governments incentivized it further by offering property tax relief to registered B Corps.
Community Land Trusts: A Community Land Trust (CLT) is a non-profit organization that owns and stewards land for community benefit, thereby removing it from the open real estate market. CLTs provide affordable space for a variety of uses, including housing, local enterprise, and community gardens. Toronto’s first CLT, the Parkdale Neighbourhood Land Trust, was recently established and efforts are underway to create one in Kensington Market as well.
It is high time to experiment with new models, whatever they may be, or else developments that produce the largest financial returns will continue to overpower diverse land uses - threatening the very things that make our city such a great place to live.
Header image courtesy of Nano Debassige.