July 6, 1998
To:Corporate Services Committee
From:H.W.O. Doyle
Subject:Charging Additional Rents to Gross-Lease Tenants of the City
Purpose:
To seek authorization to charge additional rents to gross-lease tenants of the City on
commercial or industrial property, in order to compensate for the increased realty taxes
resulting from the elimination of the business occupancy tax and for changes in the way
business improvement area charges are levied.
Funding Sources, Financial Implications and Impact Statement:
Not Applicable.
Recommendations:
It is recommended that authority be granted, in those cases where appropriate, to take any
steps necessary to protect the City's rights, as landlord, to flow through to its gross-lease
tenants the amounts permitted under sections 444.1 and 444.2 of the Municipal Act,
including but not limited to, the execution and delivery of any documentation by the relevant
Commissioner, and that any steps taken to date in this matter by said Commissioners and/or
their designates be ratified.
Council Reference/Background/History:
Last year the provincial government enacted two pieces of legislation, the Fair Municipal
Finance Act 1997, and the Fair Municipal Finance Act (No. 2), which, inter alia,
eliminated the business occupancy tax ("BOT") previously levied by municipalities.
The resulting revenue loss to the City is expected to be recovered by levying a proportionate
increase in realty tax on the commercial and industrial property classes. However, this will
create problems for landlords who have gross leasing arrangements with their tenants
because, while the former BOT was levied directly against the business, the increase in
realty tax resulting from its elimination will be now levied against the landlord, as property
owner. Thus, under the terms of a gross lease, which provides that the landlord is
responsible for all incidental costs, including realty taxes, the increase in realty taxes
resulting from the elimination of the BOT will become the landlord's responsibility. Similar
changes have taken place with respect to business improvement area charges ("BIA
charges") which were formerly levied directly against the business tenant, but are now levied
against the landlord, as property owner.
Comments and/or Discussion and/or Justification:
In order to provide relief to landlords having gross leases, the province recently introduced
the "gross lease flow-through provisions" of the Small Business and Charities
Protection Act. These provisions, which came into force on June 11, 1998, amend the
Municipal Act ("the Act") by adding sections which allow landlords to flow-through to
tenants of "gross-lease" commercial or industrial property amounts roughly equivalent to the
average business taxes for the property class in 1997; and to flow through any applicable
BIA charges to such tenants.
The Act requires a landlord to give two notices before payment under the Act may be
required, the first of which must advise the tenant that the landlord is going to require the
tenant to pay amounts under those sections, and the second notice will set out the actual
amount that the tenant is required to pay. The Act sets out stringent deadlines as to when
these notices must be served, with the first notice having to be served within 30 days after
the assessment rolls are returned. As the assessment rolls were returned on June 15, 1998,
the first notices have to be served no later than July 15, 1998. The second notice must be
served between the time that the property taxes for the year have been determined and
September 30, 1998.
The two City Departments which appear to have such leases under their jurisdiction are the
Corporate Services Department and the Economic Development, Culture & Tourism
Department. In light of the rigid deadlines prescribed under the Act, it was necessary for
staff of those Departments to send out the first notice to the relevant tenants in order to
protect the City's interests.
Conclusions:
Given the above, it is therefore recommended that any steps taken to date in this matter be
ratified and that authority be granted to take any further steps necessary to protect the City's
rights under sections 444.1 and 444.2 of the Act, including but not limited to, the execution
and delivery of any related documentation.
Contact Name and Telephone Number:
Jacqueline P. Wigle: 392-3912.
H.W.O. Doyle
City Solicitor
Legal Services