Small businesses are bracing for incoming ‘double whammy’
A 44 per cent rise in the 2018 assessed property value of the Robson Street building housing Chocolate Mousse is the nail in the coffin for owners Karen and Jane Tennant.
The beloved kitchenware store, a West End fixture for more than 30 years, has a triple-net lease, which means the sisters are on the hook for rent, property taxes and maintenance fees — a standard practice in commercial leases in B.C.
The rent is reasonable, Karen Tennant said. It’s the property taxes — which jumped almost 93 per cent in 2017 after the building ’s assessed value more than tripled from $16 million to $52 million — that are forcing them to close up shop when their lease expires next January.
“We’ve managed with triple-net for 35 years, but we didn’t buy into (the property tax) doubling and being more than our rent,” said Tennant. “It’s been manageable until now, but this will drive the little businesses and the medium businesses out of business.”
For 2018, the property’s value climbed to $75 million, a 44 per cent increase, which Tennant estimates will mean a 25 per cent jump in property taxes.
In urban areas of Metro Vancouver, commercial property assessments rose between five to 50 per cent in 2018, according to B.C. Assessment, which released the data on Tuesday.
The jump was the highest out of all property types. Light industrial was second, increasing in value by a maximum of 45 per cent.
The City of Vancouver saw a 19.5 per cent increase in business property values. Other municipalities recorded larger spikes, including Port Moody (24 per cent), Burnaby (23 per cent), Coquitlam (25 per cent) and Richmond (21 per cent).
Paul Sullivan, a partner in the real-estate appraisal and consulting firm Burgess Cawley Sullivan & Associates, said properties along “commercial nodes” such as Broadway, West Fourth Avenue, Commercial Drive and Fraser Street are hit hard not just because of the increase in market value, but also because of land-use policies that allow for substantial densification, subjecting properties to redevelopment pressures.
“We’re valuing commercial properties based on their residential redevelopment potential, to which we apply this (commercial) tax rate that is five times higher than residential,” Sullivan said. “They get a double whammy.”
Commercial properties make up seven per cent of all Vancouver properties, yet they pay 47 per cent of property taxes, he said.
To make the system fairer, Sullivan is advocating for split assessments for properties that are rezoned for redevelopment. It would mean the commercial component of the building is taxed at a commercial tax rate, while the unbuilt density is taxed at the lower residential rate, which could cut the tax bill by about 30 per cent.
Coun. Raymond Louie, who is in charge of the city’s tax and finance portfolio, said the city is worried about the impact the large yearover-year increases have, but said the culprit is the triple-net lease agreements that allow owners to escape the tax bill by foisting it off to their tenants.
“What we have been focusing on is trying to figure out a way to support small business owners,” Louie said.
One way is to ask B.C. Assessment to provide a breakdown of the assessed value for the business and of the redevelopment potential, which he hopes would allow small business owners the information necessary to negotiate their leases.
“I hope it would help small businesses understand they should be very careful about signing on to these triple-net leases, especially in high-value growth areas,” he said. “There should be at the very least some limits on the year-overyear increases of what they have to pay.”