To provide information on how the Municipal Property Assessment Corporation (MPAC) values equity co-operative housing projects.
The Co-operative Corporations Act sets out the rules and procedures for all co-operatives that operate in Ontario.
The Canada Cooperatives Act sets out the rules and procedures for federally incorporated co-operatives.
The Business Corporations Act sets out the rules and procedures for incorporating a share capital corporation in Ontario.
The Corporations Act sets out the rules and procedures for incorporating a not-for-profit (e.g., non-share capital) corporation in Ontario.
There are many different types of co-operatives that operate in Ontario. Some examples include agricultural marketing co-operatives, consumer co-operatives, service co-operatives and housing co-operatives.
Housing co-operatives come in many shapes and sizes including townhouses, mid-rise and high-rise apartments, multi-plex properties and single-family homes. Simply put, a housing co-operative is a legal entity that is incorporated for the purpose of providing housing for its members.
In Ontario there are two types of housing co-operatives - equity co-operatives and non-equity co-operatives which may be incorporated with or without share capital (i.e., “for-profit” incorporated under the Business Corporations Act or “not-for-profit” incorporated under the Corporations Act).
For the most part, the decision to incorporate on a “for-profit” or “not-for-profit” basis is based on the purpose of the co-operative and the financing required. Despite these differences, the primary objective of both types is to provide housing to their members on a democratic and continuing basis.
An equity co-operative is a housing development that is collectively financed by its members. In equity co-operatives, the residents (i.e., members) contribute equity (i.e., money) in exchange for shares. As a shareholder, the resident does not own the real estate, but owns a share of the legal entity of the co-operative corporation. The co-operative corporation owns the real estate.
In exchange for their investment, residents are granted the right to occupy a housing unit and use the common amenities. Each member also receives an occupancy agreement, which sets out the rules and outlines the rights and obligations of the residents. In addition, each resident contributes to the mortgage and maintenance costs (equally or proportionately, as set out in the corporation’s bylaws) through a monthly housing charge.
What sets co-operatives apart from other types of housing is its democratic nature. Co-operatives operate on a “one member, one vote” system, which ensures that all members have an equal say in how the co-op is run and managed.
When a resident decides to leave the co-operatives, they are entitled to sell their shares and to receive at least their initial equity and perhaps some part, or all, of the appreciated value of their shares. This depends on the approach taken by the co-operative. With market rate financing, the share price is allowed to rise on the open market and shareholders may sell their shares at whatever price the market will bear. With limited equity financing, the co-operative bylaws dictate the pricing of shares when sold. By capping the resale price of the shares, affordability is maintained for future residents.
In this way, equity co-operatives are very similar to condominiums as the units (shares) may be listed with a real estate company for sale on the open market.
The most appropriate method to value equity co-operatives is through a direct sales approach, which uses sales of units within a co-operative building to calculate a total value. This approach is based on the idea that the best indication of a property’s value is the sale price it would achieve in an open market.
For the 2016 Assessment Update, an attempt was made to contact each equity co-operative in the province of Ontario in order to request current sales information. This request was made because sales information is not readily available for equity co-operatives, as the sales are not registered in Ontario’s Land Registry System.
Where MPAC was successful in obtaining sales information from the co-operative and the number of sales was sufficient to value the co-operative, the direct sales approach was applied.
This approach involves the analysis of units that have sold within the co-operative building. Sales within the co-operative building are analyzed to determine an average selling price per square foot of unit area.
The rate per square foot is applied to the total area of all the units in the co-operative complex, excluding the common areas, to arrive at an overall estimate of value for the property.
Where MPAC was unsuccessful in obtaining sales information from the co-operative or there were a limited number of sales within the co-operative, a secondary approach to the direct sales approach was taken.
In these circumstances, MPAC referred to the sales information of similar condominium units that had sold in the vicinity. MPAC collects the following information for both condominium properties and equity co-operatives:
- year of construction
- structure type (i.e., high-rise, townhouse, etc.)
- number of storeys
- number of units
- size of each unit
- total area of the complex
- suite mix (i.e., number of bedrooms per suite)
- a list of amenities
Using these criteria, comparable condominiums are selected for comparison purposes and their sales, relevant to the applicable valuation date, are analyzed to determine an average selling price per square foot of unit area. Where required, adjustments to this rate are made to reflect differences in amenities, quality, location and other factors proven to affect the value of the property.
The adjusted rate per square foot is applied to the total area of all the units in the co-operative complex, excluding the common areas, to arrive at an overall estimate of value for the property.
In the absence of market evidence to the contrary, a further downward adjustment of 10 per cent is then applied to this estimate to arrive at the property’s Current Value Assessment. This standard 10 per cent deduction recognizes the difference in ownership structure between condominium property (i.e., fee simple) and equity co-operatives (i.e., shares).
On assessment rolls, equity co-operatives are described under one roll number with the co-operative housing corporation shown as the property owner. The individual residents or shareholders are listed as tenants of the corporation.
- Section 19(1) of the Assessment Act
- Ontario Regulation 282/98
- Co-operative Corporations Act
- Canada Cooperatives Act
- Business Corporations Act
- Corporations Act
Note: This procedure has been developed to provide the public with a general understanding for the valuation of equity co-operative housing projects. The applicable law prevails to the extent there is any conflict between the procedure and the relevant law.