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

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