McMillan LLP – Commercial Real Estate Lawyers

I sat down with Robert Antenore this am for a coffee.  He helped negotiate the lease on a transaction we have completed with a large multinational renewable energy company who is leasing their first office space in Toronto.  Amongst the many value add things he mentioned during our coffee, he stressed to always have a clause within the offer that keeps the Landlord standard form of lease up for negotiation after the offer has gone firm.  Fortunately I have this clause as part of my standard offer so my clients won’t get caught by items like demolition, relocation or restoration clause that landlord’s try and sneak through.

I highly recommend, as an agent, you consult with a lawyer on your standard form of offer to keep up with the times.  A good offer makes everything go that much smoother.  Further, hiring a good lawyer is a critical step when leasing your office space.  After my experience with Robert, I would not hesitate to recommend him to my other clients moving forward.

Thanks Robert!

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Modular Light Screen Room and Office Divider

Need a little privacy?  Cool idea for your office space.

Unplggd

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How Realtors Can Help!

Great article on why you should hire a commercial real estate agent.
http://howcommercialrealtorshelp.ca

In a 2007 national survey of business professionals involved in real estate, 92 per cent of all respondents said they would describe the services of a commercial REALTOR® for a transaction as highly useful, or useful.

* 80% of all respondents said using the services of a commercial REALTOR® would save them time;
* 80% of respondents said using a commercial REALTOR® would help avoid hassles and complications;
* 86% of all respondents said using a commercial REALTOR® means market knowledge

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Canada’s tallest office tower gets a $100-million facelift

By Kuitenbrouwer

Carrera marble is so 1975.

The Italian white marble that clads Canada’s tallest office tower, First Canadian Place, is coming down next year, all 45,000 slabs of it, the owners announced today. In its place, workers will install 7,800 panels of white glass.

All of which is good news; two years ago a slab of marble, roughly a metre square, fell off the building after a spring rainstorm. Frightened police closed down the whole financial district.

Brookfield Properties Corp. said the $100-million restoration job will also involve a rethink of the lobbies in the skyscraper, including new staircases “redesigned to be lighter in scale.’’

This is more good news for Toronto’s thriving business district. The new Bay Adelaide Centre opened last week; two new towers for Telus and the Royal Bank are nearing completion.

Brookfield Properties Corp. bought First Canadian Place on the tower’s 30th birthday in 2005 from a branch of the Reichmann family of Olympia & York fame, who were the original builders. Tom Farley, president and chief executive of Brookfield’s Canadian commercial operations, said the company knew at the time that the iconic tower was a fixer-upper. He said the original builders simply used a marble skin on the building that was too thin.

“The panels should actually have been thicker,” Mr. Farley says. “If they had been two inches thick they would have lasted 100 years.”

Since it bought the tower, Brookfield has been replacing defective marble tiles one at a time. In our minds’ eye, First Canadian Place, the 72-storey headquarters of the Bank of Montreal, is white. But today when I looked at it more closely I noticed that, over the years, the marble panels — two rows of 120 tiles per floor — have changed to a yellowy-grey colour. The 2’ X 4’ marble panels that the owners have replaced over the years look a bit like the occasional false tooth.

Brookfield is about to select a Canadian manufacturer to produce the 7,800 panels of “brilliant new white fritted glass,” each panel 8’ by 10.’ Fritted means that tiny white glass particles are baked into the glass. Starting at the top and using swing stages hung from the building’s side, workers will replace the marble on all four sides, completing the job at the end of 2011.

“It will have a fresh new look to it,” Mr. Farley promises. “It’s gonna be a massive undertaking. We have quantified all the logistics on implementing the strategy.”

Today I noticed workers have already removed four marble panels per floor on much of the tower’s west side, exposing yellow insulation. It seems somehow sad that the Romans and Greeks could build structures of marble that lasted millenia, but ours crumble after a few decades. That’s progress, I guess.

Brookfield says it plans to “recycle” the marble; Mr. Farley says perhaps they will crush the marble and sell it for “rooftop reflective ballast;” that is, white gravel that will reflect sunlight and keep office towers cool. He also suggested he will offer the marble for landscaping and community art projects.

There may be even more edifying uses for such venerable marble slabs; two of them would solve our kitchen countertop problem.

Some facts about First Canadian Place:

• When First Canadian Place opened in 1975 at the corner of King and Bay streets it was, at 72 storeys, the tallest office building in the Commonwealth. The headquarters for the Bank of Montreal, it remains the tallest office tower in Canada, and has 30 elevators, half each serving odd and even floors.

• Olympia & York, the builders, clad the tower in about 45,000 panels of Carrera marble it brought by ship from Italy. Each 2’ X 4’ panel is about 4 cm thick. Brookfield Properties, which bought the tower in 2005, has since replaced hundreds of the weather-beaten marble panels, after at least one panel fell off, endangering those below.

• Brookfield now plans to replace the marble façade with 7,800 “spandrel panels” of “fritted glass.” Each white glass panel, baked in Canada, will be the size of eight marble tiles. Workers will start at the apex and work their way down on swing stages, similar to those used by window-washers. The marble tiles in the building’s four corners will make way for brass panels.

• The company promises to redefine First Canadian Place as “Canada’s premier address for business and pleasure,” with a renovation of its 120-shop underground mall, including “new iconic national retail brands.”

• The marble in the lobby will disappear too, replaced with glazed glass and brushed steel. All the details are at redefiningfirst.com.

• On the King Street side one marble panel, at ground level, bears this engraving: “This symbolic cornerstone of First Bank Tower was unveiled by the Honourable Pauline McGibbon, Lieutenant-Governor of Ontario, on Oct. 3, 1974.” The company did not say what will become of this most precious of the tiles.

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Who Pays for Green? CBRE Commercial Real Estate Report

However, there were some other interesting conclusions from the report:

* Although developers will reap some rewards in terms of higher rents and enjoy higher rates of rental growth,the rates of rent additionality is about the same as the excess development costs (2 percent to 6 percent), so the additional rental value is essentially a wash.
* Improvements in energy savings can be between 10 percent to 50 percent, a major number.
* Residential customers will pay some premium for green, but not necessarily the actual cost of the green improvements.
* Extra value will need to accrue from the investment markets for the lower risks and higher valuations of green buildings.

How should this study effect decisions making at the policy and business level?

* The potential market benefits from greening buildings have not solidified — this means that incentives can still be powerful tools to motivate green projects. The incentive may be the tipping point.
* Energy savings, and measurement of the realization of energy savings, is an important factor in “pencilling out” green improvements. From a policy perspective, this puts even more value on reporting and disclosure of building performance measures.
* Policy measures need to be different for commercial and residential sectors to motivate green. There may need to be different levels of incentives applied to motivate different segments.

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Commercial Real Estate Terms and Definitions

Commercial Real Estate Terms care of http://howcommercialrealtorshelp.ca
Abandonment A person or entity that leaves a demised premises before the end of a lease term.

Absorption rate The net statistical changes in occupied space over a period of time. Positive absorption reflects an increase in occupied space while negative absorption reflects a decrease.

Accrued expense Expenses incurred which are not yet payable, or have not yet been paid.

Acquisition cost The total cost to the purchaser of a property; includes soft costs and sales costs.

Additional Rents These are rents charged to a tenant for the maintenance, taxation, and insurance of any common areas.

After tax yield rate The annual rate of return on equity after payment of income taxes.

After tax yield This is the annual profit remaining after payment of income taxes, or the annual return on equity after payment of income taxes.

Amenities These are features that make a property more attractive, useful, desirable, and/or rentable and are usually included in the sale price or rent calculations.

Amortization The process of paying off a debt, together with interest, usually with equal payments at regular intervals over a period of time.

Anchor tenant A prominent tenant occupying a large proportion of a commercial property and attracts customers and other tenants to the property.

Appraisal Estimate This is the process that leads to an estimate of the value of a property, and can also refer to the report that states the estimate and conclusion of value

Arrears Money that is due or past due, but has not been paid.

Assessment This is a levy against a property in addition to general taxes, and it is usually applied by a civic authority for improvements such as streets, sewers, etc.

Assignment The method or manner by which a right, a specialty, or contract is transferred from one person to another.

Basic rent This is the rent agreed to through negotiation and does not include adjustments and additions.

Blanket mortgage This is a single mortgage covering more than one property, such as a mortgage covering all the lots of a builder in one subdivision.

Break-even point This is the point where the effective gross income equals the cost of all operating expenses and debt service payments.

Build to suit The construction of a building or property that suits the particular needs of the occupant.

Capital improvements These are additions to the property or improvements that enhance or extend the useful life of the property.

Capitalization This is the anticipated stabilized rate of return from an investment. Also known as the cap rate.

Cash flow analysis A projection of the buyer’s estimated cash flow over the holding period.

Clear title Any property that is free of any and all competing claims, mortgages, liens, and encumbrances.

Comparables A term used to refer to area rents or competitive rental properties or area sales that have sold, implying that “rent comps” and “sales comps” are comparable in size, location, condition, amenities, etc., to the subject property.

Contingent offer This is an offer to purchase property subject to certain conditions, including the buyer’s approval of income and expense statements, title commitment, physical condition of the property, loan commitment, etc. – being met. The specific amount of time allowed to clear these provisions is called the inspection or contingency period.

Density This is the amount of total square feet buildable on a set land. For example high density properties feature more floors.

Encroachment A building, part of a building or obstruction which intrudes on another property.

Encumbrance A claim, lien, charge or other liability attached to real property which may diminish its value.

Escalation clause A clause in a lease providing for an increase in rent at a future time. This could be a fixed or pre-determined rate increase, or a cost of living increase that ties the rent to a cost of living index, or direct expense – the rent is adjusted according to changes in the expenses of the property such as a tax increase.

First right of refusal An option in a lease provided to a tenant in a lease contract providing first right to occupy space or match an incoming offer on adjacent space that may be required for the tenant’s future expansion.

Floor space ratio Also known as FSR, the maximum floor space of a building relative to its land area

Free and clear When there are no liens or loans against real property

Graduated lease A lease that details for changes in the rental rate, usually based on periodic appraisal or time.

Gross lease A lease where the tenant pays all or part of the expenses of the leased property, such as taxes, insurance, maintenance, utilities, etc.

Gross rent multiplier Sales price or value divided by annual effective gross income. For example if sale price is $325,000 and the effective gross annual income is $50,000 the G.R.M. is 6.5 ($325,000 /$50,000).

Gross up area It is the space leased but not occupied by the tenant, usually for areas as washrooms, lobby area and utility centers.

Interest only mortgage A non-amortizing loan where the lender receives only interest during the term of the loan and recovers the principal in a lump sum at the end of the term.

Landlord Company or individual who rents property to another

Lease A contract where one party (the landlord) agrees to allow another party (tenant) the exclusive, common and/or joint right(s) to use a property for a specific period of time
Leaseback A transaction where an investor purchases property and then leases it back to the seller.

Lease buyout When a landlord offers to take over the current lease of a tenant.

Lessee The tenant, or the party a property is rented to.

Lessor The landlord, or the one who rents the property to another.

Letter of intent A formal method of stating there is interest in a property, but it is not an offer and creates no obligation.

Lien A hold or claim which one person has upon property of another as security for a debt, charge, tax or judgment.

Loan-to-value ratio This is the principal amount of a loan as a percent of lending value. For example, if property is purchased for $500,000 and is financed by a bank loan for $300,000 the ‘loan-to-value” ratio is 60% of the property’s lending value to a borrower.

Mill rate Equal to one tenth of a cent. Used in expressing a tax rate Ten mills would be the same as ten dollars per thousand.

Mortgage A legal document pledging a described property for the performance of the repayment of a loan; a loan secured by a pledge or conditional conveyance of real estate.

Negative cash flow When the income from an investment property does not equal the usual expenses. The owner must come up with cash each month to meet these expenses.

Net income The difference between effective gross income (property) and the operating expenses including taxes and insurance. The term is qualified as net income before debt service.

Net lease A lease requiring the tenant to pay, in addition to a fixed rental, the expense of the property leased, such as taxes, insurance, maintenance etc.

Net-net lease A lease in which the tenant pays a rent to the landlord that includes all real estate taxes only and does not include any portion of the operating expenses.

Net-net-net lease Also known as a triple net lease, when the tenant pays rent to the landlord that does not include all property taxes and operating expenses.

Net operating income Also known as NOI. This is the annual net income remaining after deducting all fixed and operating variable expenses, but before debt service and income tax. The specific formula is:NOI = Scheduled rental income + other income – vacancy and credit losses – operating expenses

Net rentable area Also known as net rentable square feet. This is the total amount of square feet that can be used for rental income. It typically excludes stairways, elevators, hallways, common areas, etc.

Net rent multiplier The factor resulting from dividing the net operating income into the sale or purchase price.

Non-conforming use Property used for purposes that do not conform to the permitted uses in the municipal or provincial zoning by-laws.

On-site improvements Work completed on a property that improves its value.

Option The right to purchase or lease a property at a certain price within a designated period of time for which a consideration is paid.

Payback period The time required for the complete recovery of an investment; often used with the concept that all income is considered a return of capital until the entire investment is recaptured and that income received after complete payback is considered profit.

Percentage lease A percentage lease is when the tenant pays a minimum rent then also pays a percentage of the volume of the business done on the premises whichever is greater. The percentage paid differs according to the types of business.

Phase I Level Audit This refers to an initial environmental assessment of a facility by a qualified environmental engineering firm for potential contamination to determine if further investigations are warranted. Phase II level audit investigations would require further subsurface sampling, electromagnetic and hydro-geological study.

Pre-lease The leasing of a property or space that has not been developed or constructed.

Pro Forma Means “for form only”. A study prepared to estimate future Income, expenses and potential profit or loss.

Radius Clause In a percentage lease, it is customary to have a clause that details the distance from the property that a competing store from the same chain may be located. This is usually a distance sufficient so that two stores from the same chain are not in the same trade area.

Retail premises Premises used for the sole purpose of selling goods and/or services to the general public

Unencumbered This is a property or land that has no liens, claims or mortgages against it.

Vacancy rate The percentage of total scheduled rental income lost to vacancy and bad credit costs.

Yield This is the ratio of income from an investment to the total cost of the investment over a given period of time.

Zoning The rules of a municipality that detail the allowable uses for the real property in specific areas, and only then on specified conditions.

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Ontario Update: Preparing for the Harmonized Sales Tax

In March 2009, the Ontario government announced that it would be harmonizing its PST with the federal GST in order to create a single consumption tax of 13% effective July 1, 2010 (“Harmonized Sales Tax” or “HST”). Other provinces have previously implemented a similar regime or are about to follow suit. The change brings with it the need for both landlords and tenants to understand and plan. From a leasing perspective, that includes ensuring that their leases adequately address the new system.

Before HST
Currently, separate consumption-based taxes are collected by the Canadian (federal) and Ontario (provincial) governments. At the federal level, a Goods and Services Tax (“GST”) is charged at the rate of 5%. GST applies to most transactions generally seen within the commercial leasing context, including the payment of rent. Except for GST-exempt businesses, GST paid out is credited against GST collected from customers, as an Input Tax Credit (“ITC”). (A GSTexempt business provides goods and services that are exempt from GST, so they collect none. Similarly, they make no claim for ITCs. Health care services (including dental services) are GST-exempt, as are educational services, child and personal care services (such as day care), legal aid services, and supplies provided by charities, public bodies and financial services providers (such as banks).) For an average business (i.e. not one that is GST-exempt), the ITC amounts add up to more than the GST payments on purchases of goods and services, and the result is that the GST is neutral except as it relates to cash flow.

At the provincial level, an 8% Provincial Sales Tax (“PST”) is applied to some goods and services. Unlike the GST, there is a plethora of PST-exempt goods and services, including rent payments. Exemptions may be available to businesses depending on the type of purchaser involved, the type of goods purchased and the use to which the item is to be put.

Although both taxes are consumption based, one (the GST) is largely considered as less painful than the other (PST) because the latter is a true cost of doing business, albeit applied to a smaller basket of items.

Most lease forms express an obligation on the part of the tenant, and in some cases on the part of the landlord, to pay GST on rent and other charges. In the absence of a clear contractual obligation, legislation requires that it be collected on taxable supplies (e.g. rent), so there is little likelihood that a party will avoid paying it and face no sanctions. However, from a remedies standpoint, it is always better to point to a clear contractual provision expressing an obligation to pay. Some lease forms allow landlords to recover from their tenants the cost of GST paid or payable on costs included in “operating costs”. Some lease forms require that these amounts be offset by any claimable ITCs. By and large, since GST was first implemented in 1991, there has not been a lot of deep thought given to whether lease forms adequately treat the subject of GST, since the taxation system has taken hold of Canadian business consciousness and is widely understood, applied and accepted as “ordinary”.

After HST
The introduction of the HST involves blending GST and PST into a single tax to be administered by the Canadian (federal) government. As a result of amalgamating the two taxes, some goods and services previously exempt from PST will become subject to 13% HST. Generally, we can expect that more goods and services will be taxed; this new revenue is exactly why the Ontario government is making the change.

The changes being implemented to the consumption tax system in Ontario will generally not significantly increase the operating costs of businesses who are eligible for ITCs. On the contrary, the amalgamation will likely result in a net savings for those businesses because previously PST was not subject to any ITC but was merely an out-of-pocket cost.

Unfortunately, businesses currently exempt from GST will see an increase in their operating expenses as they will be required to pay the increased HST on their rent and other expenses but will still not be eligible to claim any ITCs.

In addition, certain restrictions will apply respecting the ability of businesses with annual taxable sales above $10 million (“large businesses”) to claim an ITC on certain transactions. In particular, for the first 5 years following the implementation of the HST, large businesses will not be able to claim ITC’s on the 8% PST paid on the following: energy; telecommunications services (excluding internet services and toll-free numbers); vehicles with a weight below 3000 kilograms (and their associated fuel); and food, beverages and entertainment. The ITCs for these items are to be phased in over the three years following implementation of the HST. For the period July 1, 2010 to June 30, 2015, this change will effectively increase, by 8%, the cost of utilities (excluding water) for commercial property owners and managers who qualify as large businesses. (NB: There is some ambiguity with regard to whether the restriction will apply to utility bills in their entirety, and whether the definition of ‘large business’ will apply to a building owner or the property manager.)

What to do to get ready for HST
Attention should be paid to ensuring that offers to lease, letters of intent, and leases that will be in effect as of July 1, 2010 properly address HST. Many standard form leases provide that the tenant will be responsible to pay GST, but refer only to GST and therefore may not be written broadly enough to capture the combined tax. While some lease forms already include broad definitions of “Sales Taxes”, it is prudent to evaluate all standard form leases, letters of intent, offers to lease and other agreements and remove any references to GST or narrow definitions of sales tax in favour of capturing a broader range of possible consumption-based taxes. These broader terms should include the concept of “any harmonized sales or other consumption tax now or in the future imposed by any level of governmental authority, whether against rent or any other amounts”.

Likewise, “operating costs” should be defined to include HST in respect of which no ITC is available.

An irritant in the area of consumption based taxes has arisen over the years around the issue of whether a landlord must pay GST on a leasehold improvement or other allowance paid to the tenant as consideration for the lease. Some landlords routinely agree to pay while others agree to pay only if the taxing authority requires GST to be paid. The transition to HST should not cause any change in thinking, except that if the HST is not required to be paid by the taxing authority, perhaps it is fair to routinely qualify that obligation. An unnecessary 13% outlay is worth avoiding, even if it does count as an ITC.

Several provinces have already graduated to the HST level; they are comfortable with that regime and report no major administrative difficulties for business. Hopefully Ontario will enjoy a similar experience.

c/o Daoust Vukovich LLP
HST Info – Newsletter

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Chris Fyvie – Toronto Office Leasing Specialist

I want to thank Jim Wright for putting this together!
http://www.integritymarketingtoronto.com
http://twitter.com/integrityism

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Whotheman.com – Starts where other sports entities stop!

Who needs radio any more when you can debate over the internet 24 /7 – great concept and growing fast!

Whotheman.com is a video sports debate and opinion website which enables fans to broadcast their opinion on any news from the sporting world or directly debate with other members who may or may not share your views.

The whotheman.com firmly believes there is a clear need for an organized and interactive platform for fans to debate and broadcast their opinion. Sports fans not only want the ability to voice their opinion but also want to hear what other fans have to say rather then simply what is presented to them by main stream sports media.

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Gio Tan Design updates their website

Not a bad redesign. The above property is a project we worked on together. I’m excited for when they start blogging, which Jason explains they will be getting into shortly. Baby steps… they’re taking the right approach!

If you need the services of a good designer for feasibility plans, floor plate studies, BOMA calculations or building code consultation these guys are great (amongst a few others I work with).

http://www.giotandesign.com
or
Other referrals here!

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