May 5, 1999

To:Corporate Services Committee

From:Commissioner of Corporate Services

Subject:Sale of Surplus Spadina Project Property at 42 Heathdale Road

Amendment of Agreement of Purchase and Sale

(Ward 28 - York Eglinton)

Purpose:

To obtain authority to amend the terms of the Agreement of Purchase and Sale between the City of Toronto and Raymond Leach for the sale of 42 Heathdale Road.

Funding Sources, Financial Implications and Impact Statement:

Revenue in the minimum amount of $341,500.00, less closing costs and the usual adjustments, subject to the revenue sharing agreement with the Province pursuant to Clause No. 1 of Report No. 25 of the former Metropolitan Corporate Administration Committee, approved on December 4, 1996, will be realized from the sale of this property if the recommendations in this report are approved. As part of the settlement $10,507.20 of rent arrears, are to be forgiven.

Recommendations:

It is recommended that:

1. the Agreement of Purchase and Sale between the City and the purchaser of the above property be amended and completed on such terms as are set out herein; and

2. the appropriate City officials be authorized and directed to take the necessary action, including the execution of any necessary agreements, to give effect thereto.

Council Reference/Background/History:

By adoption of Clause No. 11 of Report No. 17 of The Corporate Administration Committee on July 2 and 3, 1997, Metro Council authorized the sale of 42 Heathdale Road to Raymond Leach, the existing tenant. The property was a residential rental property located in the Spadina Expressway Corridor, owned by the Province and leased by Metro, which had previously been declared surplus by Metro Council. Metro entered into an Agreement of Purchase and Sale with Mr. Leach wherein the property was to be sold to Mr. Leach for a purchase price of $375,000.00, closing on October 1, 1997.

The property adjoining 42 Heathdale Road, 44 Heathdale Road, had also been sold by Metro to the existing tenant, which transaction was completed on July 30, 1997. After closing, the new owner of that property, Jonathan Fine, commenced an action against Metro seeking an easement of accommodation over the adjacent part of the 42 Heathdale Road property, which formed part of a paved driveway between the two houses. Because Mr. Leach had already entered into the Agreement to buy the land from Metro, he was also named as a party to this action. The action was defended by Metro's insurers. Mr. Fine, however, was ultimately successful against the City (as Metro's successor) in obtaining an easement over 42 Heathdale Road to accommodate vehicular access over the driveway between the two homes to his garage at the rear. Although the Court's decision was questionable on certain points of law and as to its findings, the insurer's counsel was of the opinion that the expense of an appeal was not warranted.

The City and Mr. Leach, through their solicitors, had been extending the closing of Mr. Leach's transaction from its original date of October 1, 1997, pending resolution of the Court application. Mr. Leach remains a tenant of the purchase property under his existing lease agreement. Due to the long delay occasioned, in part, by the delay in the Court in releasing its decision and an Order ensuing after the hearing of Mr. Fine's application, Mr. Leach stopped making his rental payments of approximately $1,900.00 per month to the City after July 1, 1998. At present, his arrears of rent are in excess of $15,000.00.

In recent correspondence, Mr. Leach has asked the City to reduce the purchase price of the property because it is now subject to an easement and has thereby limited his future use of those lands. He has also asked to be compensated for his personal time spent is assisting the City in its defence of the Court application, as he is self-employed and the proceedings were lengthy. Lastly, he is requesting that the City pay his additional real estate legal fees incurred as a result of the numerous delays in closing.

Comments and/or Discussion and/or Justification:

The easement allowed Mr. Fine, as owner of 44 Heathdale Road, provides for a right to pass over the adjacent paved portion of 42 Heathdale Road for pedestrian and vehicular access. This use cannot be obstructed and Mr. Leach will be obligated to accommodate same.

At law, because the City is no longer able to convey title to the property free of the easement interest, as it is contractually bound to do, Mr. Leach is potentially entitled to an abatement of the purchase price and other consequential damages from the City. Mr. Leach, in his efforts to co-operate in defence of the Application, was also required to expend considerable time and funds assisting the insurer's counsel, as well as paying an additional ten months' rent to the City after the original closing date.

Although indirect benefits may have accrued to Mr. Leach as a result of the delay, Mr. Leach's position is that none of the events or delays were attributable to him and that he should be compensated accordingly.

In consideration of these various factors, and in order to avoid further delay or possible litigation, an agreement has been reached with Mr. Leach, in principle, to complete the transaction on the following additional terms:

1.The previously approved purchase price of $375,000.00 shall be reduced by the following amounts:

(a)$8,500.00 as compensation for his time in assisting the City in its defence of the Court application over a one-year period;

(b)$1,000.00 for additional real estate legal fees incurred as a result of the delays in closing; and

(c)$24,000.00, representing the City's agreement on the diminution in the market value of 42 Heathdale Road occasioned by the easement in favour of the adjoining lands;

2.A further adjustment is to be made on closing, to include payment by Mr. Leach of an amount equal to one-half of the remaining outstanding rental arrears to closing, which will be $10,507.20 less his last month's rent deposit, including applicable interest.

This agreement is intended to be all-inclusive of any other claims or expenses Mr. Leach may have against the City. His legal fees incurred as a named co-defendant in the Court application by Mr. Fine will be paid by the City's insurer.

I am advised that the Province, which is entitled to a one-third share of the net proceeds of sale of all Spadina Expressway properties will agree to share in a reduction of the purchase price of $15,000.00, which was the lower of the two appraised values of the easement interest. It is of the view that any other expenses should be to the account of the City, as it managed both the property and sale and the conduct of the litigation.

Conclusions:

In the circumstances, it is fair and reasonable that the sale proceed by way of amendment to the Agreement of Purchase and Sale, based upon a reduction in price.

Contact Name:

Sheryl Badin, 392-8142, Fax 392-4828, E-Mail Address: sheryl_badin@metrodesk.metrotor.on.ca (cs99050.wpd)

Margaret Rodrigues

Commissioner of Corporate Services