FMC Fall Real Estate Seminar 2011

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FMC Fall Real Estate Seminar

September 27, 2011

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Review of Recent Developments in Commercial Leasing

Presented by: Sheldon Disenhouse & Jordan Hill

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INTRODUCTION

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Standard Methods of Measurement:The New BOMA 2010 Standard

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Office Buildings: Standard Methods of Measurement (2010)

• Calculation of Rentable Area

• Overview of differences between BOMA 1980, 1996, and 2010

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Retail Buildings: Standard Methods of Measurement (2010)

• Introduction by BOMA of its first Retail Standard

• Calculation of Gross Leasable Area

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Case Comment: Additional Rent Adjustment Provisions

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Additional Rent Adjustment Provisions• Ayerswood Development Corporation v. Western Proresp Inc. (Ontario Superior Court of Justice)

• Lease, Section 3.04:“Wherever under this Lease the Tenant is to pay its proportionateshare, the amount thereof may be estimated by the Landlord for such period as the Landlord may from time determine, and the Tenant covenants and agrees to pay unto the Landlord the amounts so determined in monthly installments, in advance, during such period and with other rental payments provided for in this lease. As soon as practicable after the end of such period, the Landlord shall advise the Tenant of the actual amounts for such period and, if necessary, an adjustment shall be made between the parties.”

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Additional Rent Adjustment Provisions• Decision:

– If the parties had wished to define the period, presumably they would have included such a definition in the lease.

– Landlord was entitled to use the period from May 1, 2001, when the leased commenced, to December 10, 2007, when it billed the Tenant.

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Other Recent Cases

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Equitable Remedies

• A number of cases over the past few years have made it clear that courts may very well be prepared to use equitable remedies when a strict reading of the lease provisions could lead to an unfair or commercially unreasonable result.

• Calloway REIT (Westgate) Inc. v. Michaels of Canada ULC (Ontario Superior Court of Justice)

– A commercial contract is to be interpreted:“…to the extent there is any ambiguity in the contract, in a fashion that accords with good business sense, and that avoids a commercial absurdity.”

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Doctrine of Spent Breach

• 1290079 Ontario Inc. v. William Beltsos (Ontario Court of Appeal)

– Doctrine of spent breach:• A historical breach of a lease covenant, once remedied, will not entitle a Landlord to refuse an otherwise valid option to renew the lease.

– But:• If a Landlord has a subsisting cause of action against the Tenant that is rooted in the breach, the lease is not “effectively clear” on the renewal date.

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Doctrine of Spent Breach

• 6133886 Canada Inc. v. Hazelton Hotels International Inc.(Ontario Superior Court of Justice)

– Lease provided: “…so long as 6133886 Canada Inc… is not in default under the terms of the Lease…” it will be entitled to rent free periods from time to time during the term.

– Tenant was in default from time to time, but not in default at the time the rent free period was applicable.

– Court determined that the pre‐condition does not require that Tenant shall not have been in default; it requires only that it is not in default.

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The preceding presentation is meant to only provide general information and should not be relied on as legal advice.

If you are faced with one of these issues, please retainprofessional assistance as each situation is unique

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Review of Municipal Official PlansWhy they are important and why do you need to be involved in the process?

Presented by: Jason Park & Mark Piel

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Introduction – What’s at stake?

• Losing Development Rights– Redesignation of properties under an Official Plan– Additional requirements added to Official Plan that affect

redevelopment of properties

• Conversion of Employment Lands– City of Toronto Official Plan Update may be the only opportunity to

obtain conversion for another 5 years

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Planning Act Requirements for the Update of Municipal Official Plans

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Let’s start at the beginning…

• Planning and Conservation Land Statute Law Amendment Act, 2006 (“Bill 51”)

• One of the general themes of the 2006 amendments was to recognize the important role municipalities play in land use development

• Bill 51 increased opportunities for the public to participate inplanning decision making at the local level

• The Ontario Municipal Board is to “have regard to” local planning decisions – a sort of qualified deference

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Official Plan Update Process

• Bill 51 introduced obligation on municipalities to revise their Official Plans no later than 5 years after they were in effect

– Conform with provincial plans, or do not conflict with them; – Have regard to matters of provincial interest;– Are consistent with policy statements issued by the Province; and– If the Official Plan contains policies regarding areas of employment,

including policies regarding the designation of areas of employment and removal of land there from, to confirm or amend those policies (ss. 26(1)(a) and (b)).

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Statutory Public Consultation Requirements• The Planning Act now directs municipal councils to

– hold a special meeting of council to discuss revisions that may be required to the in effect Official Plan before those revisions are adopted; and

– Have regard to any written submissions about what revisions may be required and to give any person who attends the special meeting an opportunity to be heard. (ss. 26(3) and 26(5))

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Opportunities to Appeal Employment Lands Policies

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Appeal Rights from Official Plan Update

• Preconditions of filing an appeal from decisions of council as aresult of the Official Plan Update process include the requirement that appellants must have either made oral submissions at a public meeting or written submissions before an Official Plan or amendments to an Official Plan are adopted by council (ss. 17(24))

• Failure to comply with at least one of these preconditions means a stakeholder may lose their right to appeal a decision as a result of the Official Plan Update process

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Appeals of Employment Lands Policies

• Official Plan Update process provides owners of land in areas of employment an opportunity to appeal Official Plan policies to the Ontario Municipal Board

• There is currently no right of appeal from council decisions to refuse privately initiated applications to redesignate areas of employment to other land use designations provided the applicable Official Plan contains policies dealing with the removal of land from areas of employment (ss. 22(7.3)).

• Because an Official Plan Update process is municipally initiated, any decision re: areas of employment attracts a right of appeal under the Planning Act

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Appeals of Employment Lands Policies

• Council’s decision to amend existing areas of employment policies can be appealed provided submissions are made during a public meeting or made in writing before council on this issue

• The Official Plan Update process therefore provides an opportunity for owners of lands in areas of employment to do an “end‐run” on the Planning Act prohibition on appeals from a refusal decision of council re: redesignation of lands in areas of employment and make submissions to the OMB on the planning merits of redesignation

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City of Toronto Official Plan Update

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• This fall marks the fifth anniversary of the OMB’s order bringing into effect the City of Toronto Official Plan

• Timelines– Public consultation process is scheduled to begin in October 2011 with

a series of open houses– Council will consider proposed amendments by the end of 2012– Notice of the special meeting of council must circulate no later than 30

days before the special meeting occurs (ss. 26(4)).

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• Issues identified by Planning Staff to be considered during the process include:

– Ensuring the Official Plan conforms with • the Provincial Growth Plan for the Greater Golden Horseshoe

• the Rouge Plan

• the Green Belt Plan

• the Regional Transportation Plan – Metrolinx’ “The Big Move: Transforming Transportation in the Greater Toronto and Hamilton Area”

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• Issues identified by Planning Staff to be considered during the process include:

– Confirming or amending Official Plan Policies 4.6.1, 4.6.2 and 4.6.3 on Employment Lands

– Implementation of key elements of the Avenues and Mid‐rise Buildings Study

– Implementation of elements of the Tower Renewal Program– Policies to encourage the development of residential units for

households with children in the downtown– Elements of the Climate Change Plan and Sustainable Energy Program– Strategies to advance infrastructure requirements and deployment of

electric vehicles– Update the preservation of cultural heritage section of the Official Plan

to reflect the passage of the Ontario Heritage Act in 2005

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• “Municipal Comprehensive Review” to occur concurrently with Official Plan Update

– Under the Provincial Policy Statement (2005) and the Growth Plan for the Greater Golden Horseshoe municipalities may permit the conversion of lands within employment areas to non‐employment uses only through a Municipal Comprehensive Review where the following criteria are met:• There is need for the conversion • Lands proposed to be converted are not required in the long‐term for employment uses

• The municipality will meet the Province’s employment forecasts under the Plan and the achievement of other policies of the Plan

• The conversion will not adversely affect the viability of the Employment Area

• There is existing or planned infrastructure to accommodate the conversion

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Protecting Your Right to Appeal Official Plan Update Amendments

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Recommendations for Participation in Official Plan Update Process • Although not a product of the Official Plan Update process, the adoption and approval of the Region of York Official Plan, currently under appeal to the OMB, illustrates the potential issues related to non‐participation in the post‐Bill 51 world

• The Region has objected to appeals of the Region’s Official Plan because

– appeal preconditions were not satisfied (i.e., failure to participate before adoption of the Official Plan)

– The scope of the appeal does not match the scope of participation at the council level

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Recommendations for Participation in Official Plan Update Process• Scenario 1 ‐ Failure to participate

– You’re monitoring the public consultation process during the Official Plan Update but you have no objections with the Planning Staff’s proposed amendments and decide to stay on the sidelines assumingthat Council will adopt the amendments as proposed

– Planning Staff recommendations for amendments go to Council and Council, after debating Planning Staff’s recommendations for 24 plus hours, adopt the amendments in a revised form

– You don’t like the revised form of the amendments, but because you didn’t participate in the process, your appeal rights are in jeopardy

– Recommendation: “Get on the record” and support recommended policies you approve of before the amendment is adopted

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Recommendations for Participation in Official Plan Update Process• Scenario 2 – Deficient Submissions

– You are monitoring the public consultation process during the Official Plan Update process and don’t like the some of Planning Staff’s recommended amendments

– You file a letter with the municipal Clerk objecting to the policies– Your letter raises some, but not all, issues that you have with the

process but you think “I participated, I’m safe, I can always appeal to the OMB providing more comprehensive reasons for my objections at that time.”

– You file a Notice of Appeal to the OMB but find yourself defending against a motion to dismiss your appeal brought by the municipality because your appeal raises issues you failed to mention during the public consultation process

– Recommendation: be as comprehensive as possible when making your submissions during the public consultation process

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Recommendations for Participation in Official Plan Update Process• Summary of Recommendations

– Know your real estate interests and their development potential– Understand how proposed amendments to the Official Plan may affect

your real estate interests– Speak with us so you maximize the effect of your participation in the

Official Plan Update public consultation process – “get on the record”and do it the right way

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Disclosure of (Alleged) Property Defects in Commercial

Real Estate Sale Transactions:The Next Round of Cases

Presented by: ANDREW SALEMSeptember 27, 2011

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Caveat Emptor

“Absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug‐infested or otherwise uninhabitable or deficient in expected amenities, unless he protects himself by contract terms”*

*B. Laskin, “Defects in Title and Quality: Caveat Emptor and the Vendor’s Duty of Disclosure”, Law Society of Upper Canada Special Lectures: Contracts for the Sale of Land, 1960

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Alleged defects that were not disclosed: Some examples from earlier cases

• Nearby landfill used as a garbage dump

• Existence of radioactive material

• Recent landslides from adjoining properties

• Municipal council had approved recommendation for heritage designation

• Evidence of environmental contamination

• Adjacent property used as a nude beach

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Exemptions to Caveat Emptor in Real Estate Transactions

• Fraud, Mistake or Misrepresentation

• Statutory protections for new home buyers

• Failure to Disclose Latent Defects that could render the property unfit for habitation or dangerous

• Contractual Terms

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What is a Defect?

“A defect is generally understood to mean something that constitutes a failing, shortcoming, fault or imperfection. This is obviously a subjective concept. To adapt a phrase, one person’s defect may be another person’s ideal.

Obviously, to make a determination of whether something is a defect in the quality of land, the intended use of the land mustbe taken into account.”*

*688350 Ontario Ltd. v. Piron [1994] O.J. No. 2844 (Ont.Gen.Div.) at para. 132

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Patent and Latent Defects

“A patent defect which can be thrust upon a purchaser must be a defect which arises either to the eye, or by necessary implication from something which is visible to the eye…

A latent defect, obviously, is one which is not discoverable, bymere observation.”*

*V. Di Castri, Law of Vendor and Purchaser, 3rd. ed., (updated 2011)

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The Defect Analysis – Does it Even Matter?

“The cases are not entirely consistent in approach. They do not generally first consider whether the defect at issue is patent or latent, some rely on the fraud exception and others on the latent defect principle and some seem to apply a mix of the two to arrive at a desired result.”*

*Dennis v. Gray, 2011 ONSC 1567 (per Hoy J.) at para 27.

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Three Recent Defect / Disclosure Decisions

• Kingspan Insulated Parcels Ltd. v. City of Brantford, 2010 ONSC 4610, leave to appeal refused at 2011 ONSC 265

• Cresswell Investments Inc. v. Pavone, 2011 BCSC 1069

• Dennis v. Gray, 2011 ONSC 1657

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Kingspan Insulated Parcels Ltd. v. City of Brantford

Ontario Superior Court of Justice, September 13, 2010

Leave to Appeal refused January 13, 2011

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Kingspan v. Brantford: Contractual Clauses

• Lands sold “as is”: The Purchase Agreement provided that the land was being sold “as is”, and that except as otherwise set out in the Purchase Agreement, Kingspan had not received and had not relied on any representations by the City concerning the condition of the Kingspan property, including suitability for building purposes. This clause survived closing.

• No Claims: The City represented that it was not aware of any claims pending or threatened relating to the ownership or use of the Kingspan property.

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Kingspan v. Brantford: Contractual Clauses (cont’d)

• Property Inspection: Kingspan had 90 days to inspect the land and determine feasibility of its intended use. The City was required to provide Kingspan with any written information in the City’s possession or control with respect to the Kingspanproperty. If Kingspan was not satisfied with the results of its inspection, it had the right to terminate the Purchase Agreement. Kingspan waived this condition.

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Kingspan v. Brantford: Result

• City’s Motion for Summary Judgment dismissed: City did not meet the burden of establishing that there is no genuine issue requiring a trial.

• Court not satisfied that the City’s disclosure with respect to aboriginal claims was sufficient in the circumstances.

• Court not satisfied that the City has established that information that it did provide to Kingspan was not untrue, inaccurate or misleading, given the information that it did not provide.

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Kingspan v. Brantford: Latent Defect?

• Kingspan argued that the pending or threatened aboriginal claims constituted a latent defect that the City actively concealed from Kingspan.

• The City’s position was that there was no defect (either patent or latent). However, the parties were unable to find any jurisprudence on whether an aboriginal land claim constituted a defect, whether patent or latent, which may suggest the issue is a novel one.

• The court agreed with Kingspan that it would be inappropriate to determine this on the summary judgment motion.

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Creswell Investments Inc. v. Pavone

• British Columbia Supreme Court, August 9, 2011 (N. Smith J.)

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Creswell Investments Inc. v. Pavone: Result

• The Purchaser could have discovered the true status of the mezzanine through the reasonable, minimal inquiries that a reasonable purchaser in its position would be expected to make. It was therefore a patent defect, for which the vendor is not automatically liable and to which caveat emptor applies.

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Dennis v. Gray

• Ontario Superior Court of Justice, March 11, 2011

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Dennis v. Gray: Result

• Vendor’s Motion for Order dismissing the action under Rule 21.01(b) of the Rules of Civil Procedure dismissed.

• Court found that it is not “plain and obvious” that if the danger posed by the defect is considered sufficiently grave, a duty to disclose will not be imposed on the Vendors.

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Suggestions for Avoiding Defect / Disclosure Disputes

Purchasers:• Let your intended use be known• Due Diligence Conditions• Vendor Representations and Warranties: be precise• Indemnity Provisions

Vendors• “As is” clauses• Disclosure Management throughout the transaction• Do not “actively conceal”

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Toronto Condominium UpdateSeptember 27, 2011

Presented by: Jules A. Mikelberg

10295372 v1

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CONSTRUCTION LIEN ACT – s. 33.1

• Effective July 1, 2011

• Notice of Intention to Register Condominium

• Construction Trade Newspaper

• 5 to 15 Business Days before Approval

• Form 24– Owner Name and Address– Lands– Contractors (Last 90 Days) Names and Addresses

• Liability for Damages to Lien Claimants

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MARKET FACTORS

1. Low Interest Rates

2. International Investors(India, Pakistan, Middle East, Europe, China)

3. 80,000 to 100,000 Newcomers

4. Lack of Purpose Built Rentals

5. Volatile Stock Markets/International Instability

6. Wide Range of Products/Purchasers– 300 to 9,000 sq ft– End Users, First Time Home Buyers, Empty Nesters,

Investors, Students, Children

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• Last 5 years – TSX up to 5%, High‐rise Index up 53%

• June to August 2011 – TSX down 12%, High‐rise Index Flat at $528 per square foot

• August 2011 – Index $451,000, 4.9% year over year

• 77% of sales in City of Toronto

Realnet Canada (August 2011)

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• 8% Annual increases in high‐rise prices over last 5 years

• Q2 2011– Record 9400 Units Sold (2007 – 7,000, Chicago 870)– 56% of New Home Sales– Record Active Projects– Record Launches (40 in Q2)– Record Units under Construction

- BILD (July/August 2011)

- Urbanation (July/August 2011)

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• 2007 – All‐time Record – 22,500 Units Sold

• 2011 – Urbanation Predicts New Record of 25,000 Units Sold

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2012

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Thank You

Sheldon Disenhouse Jordan Hillsheldon.disenhouse@fmc‐law.com jordan.hill@fmc‐law.com416 863 4376 416 862 3480

Jason Park Mark Pieljason.park@fmc‐law.com mark.piel@fmc‐law.com416 863 4786 416 863 4744

Andrew Salem Jules Mikelbergandrew.salem@fmc‐law.com jules.mikelberg@fmc‐law.com416 863 4728 416 863 4380

The preceding presentation contains examples of the kinds

of issues companies dealing with real estate could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique.

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