‘Hot spots’ occur when a commercial tenant (who is obligated to pay property tax as part of a triple net lease) sees a huge and sudden increase in the assessed land value of the property it occupies as a result of rezoning, or the prospect of rezoning. That commercial tenant is subsequently faced with an increase in property taxes based on that ‘highest and best use’ value even though nothing has physically changed. Until the property is actually developed with residential properties the tenant is left to pay commercial value on the future potential. Essentially the business tenant pays commercial tax on air.
Case Study: the Cambie Street Corridor
The Cambie Street businesses and residents have had a difficult time during the construction stage of the Canada Line. Unfortunately, they are about to see property tax increases of crisis proportions.
Tenants and business owners are becoming a taxation “hot spots” where year-over-year increases in assessments cause profound increases in property taxes. These are far beyond the average for the class of property. Assessed values on the Cambie corridor have doubled over the past two years and the position to double again, for an increase in assessed values, of some 400% over three years.
Cambie Street is a vibrant, successful, diverse business area with many independent neighbourhood employers. Tax increases or spikes will make the area unaffordable for most neighbourhood retailers and businesses. The sudden change in value “mid lease” can prove catastrophic for a small business owner who has little ability to increase revenues to offset the increased expenses. The business owner risks business failure and can only respond by cost cutting, the most frequent is employee cutbacks.
This is a crisis situation and without intervention the carnage from the Canada Line construction will be experienced again. How the transition period for redevelopment is handled is critical to the survival of our neighbourhoods as residents in the area know.
The “hot spot” scenario is a common occurrence in Vancouver because of rapid development and speculation. Cambie is not the first neighbourhood to experience catastrophic tax increase. Many other
neighbourhoods, such as Yaletown, Kerrisdale, and Hastings Sunrise have been victims of “hot spots” and many others will be in the future.
A solution to the devastating effects of “hot spots” are available but it is necessary to acknowledge the problem and show the political will to resolve the problem while neighbourhoods go through development transition.
Facts and Additional Information
· A “hot spot” is when the employer/tenant is paying commercial tax rate on residential properties that do not yet exist.
· Sudden tax increases pose serious problems for neighbourhood businesses. The increases are unanticipated and have no relationship to an improvement in business.
· The tenant of a commercial property is responsible for all expenses associated with the use of the property occupied. The major portion of those costs is property taxes.
· With the Canada Line operating and the city considering increasing allowable density along the Canada Line many residential properties and some commercial properties are being bought by speculators. This is causing a massive “spike” or jump in the assessed value of properties along Cambie Street. As a result, employers (tenants) will be seeing double digit increases in their property taxes for the next several years – even with the use of Averaging as a buffer.
· The jump in assessed values has taken place even though the City has not rezoned any of the properties on Cambie Street for increased density.
· When a similar situation occurred in the City of Richmond, the staff and Council successfully lobbied the province for an Charter amendment to allow for property tax relief. No such actions have been considered in the City of Vancouver.
Read Don Cayo’s excellent article about this topic: http://fairtaxcoalition.com/2007/02/how-did-municipal-taxes-get-so-skewed-every-time-a-modest-commercial-block-falls-to-a-condo-tower-the-city-budget-suffers/