Initial Steps in the Expropriation Process

Pre-Expropriation Procedures

Prior to commencing the expropriation process, the authorities may approach the owner directly in an attempt to negotiate a settlement without initiating potentially time-consuming expropriation proceedings. In which case, the authorities will approach the property owner with an appraisal report in an attempt to negotiate a settlement. If the property owner and authorities cannot reach an amicable resolution, the next step is for the expropriating authority to publish a notice of application for approval to expropriate lands.

Notice of Application for Approval to Expropriate Lands

Upon commencing an application for approval to expropriate lands to an approving authority (i.e., local municipal council), the town or region must publish the Notice of Application for Approval to Expropriate Lands in a public domain (i.e., a newspaper with general circulation in the relevant region where the expropriation will be undertaken).

Any owner which is given notice of the expropriation has the right to request a Hearing of Necessity with an inquiry officer to conduct an assessment into whether the expropriation is fair and necessary in light of the objectives of the public work.  The request for a Hearing of Necessity must be made to the authorities directly in writing within 30 days of receipt of the notice of approval to expropriate lands.

If no Hearing of Necessity is requested, the local approving authority will determine if the expropriation can proceed.  If approval fo the application is granted by the “approving authority” (as defined by the Expropriations Act), the authorities have 90 days to register a Plan of Expropriation on the title to the lands it requires. Once the Plan of Expropriation is registered on title, ownership vests in the authorities (although possession of the lands will often remain with the property owner).  There are a number of technical additional steps that occur following the registration of the expropriation plan, which steps are governed by the provisions of the Expropriations Act in Ontario.

Given the breadth of infrastructure upgrading and improvements across the Province of Ontario, various regions are initiating the expropriation process; as such, we have provided examples of the published notices of approval to expropriate lands from various authorities, as listed below:

Region of Waterloo

Town of Oakville

Town of Collingwood

City of Kingston

Dealing with a Pending Expropriation

If you are a property or business owner that has been served a notice of application for approval to expropriate lands, an experience expropriation lawyer will help you navigate the technical complexities and timelines as prescribed by the Expropriations Act.  For more information on expropriations, visit our main page here or give us a call at 647-838-6740.

Notice of Application for Approval to Exproriate Land

As has been discussed, expropriation is a taking of land without consent of the owner by an expropriating authority. An understanding of the expropriation process is essential for lawyers and appraisers to properly consult property owners and business owners that are subject to land acquisition by governmental authorities.

Time Requirements in Expropriations in Ontario 

The first step in the formal expropriation process is for the authority to serve a Notice of Application for Approval to Expropriate Land on the registered owner of the property.  A registered owner is an owner whose interest in land is registered or specified in an instrument in the Land Registry Office.  The authority is required to publish the Notice of Application for Approval to Expropriate Land for three consecutive weeks in a local newspaper where the lands are situated.

Once served with the document, the owner has 30 days to request a hearing of necessity, where the authority must demonstrate that the expropriation is fair, sound and reasonably necessary. Often, the hearing has reduced the scope of an acquisition from a fee simple taking to easement takings or to amend construction plans to minimize the impacts on the property.

Once the expropriation plan is approved, the authority must register the Plan of Expropriation within 3 months, at which time legal title to the expropriated lands vests with the expropriating authority. An owner can remain in possession of the land following registration of the expropriation plan, the owner is no longer the legal owner of the lands specified in the plan.

Other Time Requirements

After registering the Plan of Expropriation, the authority has 30 days to serve Notices of Expropriation and Election. The Notice of Expropriation notifies the owner that an expropriation has occurred and the legal title has vested with the authority. The Notice of Election provides the owner with a valuation date to select for the purposes of determining compensation. The valuation dates are either:

a. the date the notice of hearing for an inquiry was served;

b. the date of the registration of the Expropriation Plan; or

c. The date on which the owner was served the Notice of Expropriation.

In addition, the authorities will serve a Notice of Possession, indicating that the authorities will take possession of the lands at least 3 months after the date of service, before which, an offer of compensation pursuant to Section 25 of the Expropriations Act must be served on the property owner.

For more information about timelines and provisions of the Expropriations Act, it is imperative to consult with a lawyer and land appraiser early in the process in order to document the state of the property prior to the expropriation for comparison purposes in order to maximize the value of the property on the valuation date.

Reviewing Leases on Income Producing Properties

When acquiring an investment property, a thorough review of lease agreements is required to determine the appropriate valuation of the property.  The value of the investment property is directly linked to the amount of rental income, the term, the quality of the tenants, the enforceability of the lease, and any issues that may interfere with the landlord’s ability to collect rent.

Quality of the Tenant
Assessing the stability of the tenant is a critical consideration. In the commercial context, large shopping malls and plazas typically have a number of store-fronts with a diversified tenant base, where the rental income is split between a number of units. In such a case, where one tenant’s lease expires and does not renew, or where one business shuts down, the overall impact on the profitability and value of the property will ideally be negligible. However, where an Anchor Tenant occupies a large portion of the property square foot, the success or failure of this particular tenant has large implications on the value of the property. If the Anchor Tenant does not renew its lease at expiry or the business ultimately fails, large amounts of square footage can be left vacant and difficult to fill with new occupants. This is more common as e-commerce is reducing the square footage commanded by traditional bricks-and-mortar retailers.

Duration of Term
A purchaser of an investment property has to understand the terms of the leases and any options to extend or renew the lease terms. The lease terms are key considerations in determining the length and extent of the rental income stream. The terms of potential lease renewals should be considered and the rental basis (i.e., whether fair market rent at the time of renewal or inflation-adjusted escalators or other means of determining the rent at the renewal period).  If the intention is to develop the property, long lease terms (without demolition clauses) will have an impact on a purchaser’s ability to do so. Specific consideration must be given to demolition clauses to understand the basis this can be done and the notice or time frame required to be given to the tenant.

Use & Exclusivity
Commercial leases will specify the permitted uses of the premises.  Use provisions restrict the tenant’s flexibility in its operations and ensure that a landlord stays onside other leases which restrict what the landlord can and cannot permit at the property. This is particularly relevant in medical office properties where tenants request that direct competitors cannot operate in certain proximity around their practice. All restrictive covenants in the lease should be identified to ensure existing and prospective tenants are in compliance.

Tenant Inducements
For new tenants, landlords will often grant rent-free periods or grant allowances to improve the property for tenants permitted use.

Commercial Lease Renewals

Negotiating Commercial Lease Renewals

In a typical commercial lease, the landlord and tenant will agree to renew the lease on the same terms and conditions of the original lease; however, the base rent is typically subject to negotiation upon renewal.  Case law in Ontario suggests that a Court will enforce a renewal clause if it is sufficiently clear and unambiguous.

Ambiguous Renewal Clauses

Where the rent is simply to “be agreed” where there is no formula for determining the rent upon the renewal or extension period, the clause would be considered void due to uncertainty. Courts have found phrases such as “current market rents” or “fair market rent” to be enforceable, rather than those terms that indicate “rent is to be determined based on a mutually agreed upon” amount.

Use of the Premises

The type of ‘use’ of the premises ought to be considered as well in the formula for determining the rental rate at renewal.  The fair market rent based on the tenants existing limited use may be different than the fair market rent of the premises with a broader use, or at the highest and best use; as such, the type of use that will be applied to determine the market value of the rent should be stipulated in the renewal clause.

Tenant Improvements

Landlords should not assume that the value of tenants improvement are to be included in the “fair market rent” that is negotiated upon renewal or extension.  If the clause indicates that the renewal rent will be based on the “as is” condition of the property at the date of the original lease, then the current market rent will be based on the unimproved condition of the property (and as such, the tenant will not have to pay twice for its capital investment into the property).  With specific wording in the renewal clause, such as the “rental rate will be based on the current and finished condition of the property as of the date of renewal, and with reference to similar properties for a similar term,” the value of tenant improvement would be included in determining the fair market rate.

A number of issues are considered in determining the fair market rental value of a commercial lease renewal and extension and the language of the commercial lease agreement will guide the analysis. For a consultation with a commercial leasing lawyer, contact Goldstein Law and we will advise you to maximize the value of your commercial property.

Highway 401 Expropriations

As you may have heard, the Ministry of Transportation of Ontario (MTO) through its agents, is undertaking a widening of an 18-km stretch of Highway 401 through the GTA, with the addition of at least six (6) new traffic lanes, as reported here.  The Highway 401 Expansion Project extends from the western part of the GTA in Mississauga over to Milton.

In order to accommodate the road widening, the MTO needs to acquire (or expropriate) land.  The MTO is expropriating land from residential homeowners, commercial landlords, farmland, and otherwise.  A question we often receive from property owners is: how will I be compensated?

The expropriating authority must service an Offer of Compensation on the property owner. The offer must include the amount of compensation payable to the property owner immediately without prejudice to a further payout of compensation if future damages result.  As well, the authorities are required to produce an appraisal of the property.  As such, the owner can accept the initial offer of compensation and then negotiate with the authorities about the balance of funds owing at a later date.

If the owner disagrees with the authorities assessment of market value or has other damages, a claim for compensation can be brought under the Expropriations Act to the Local Planning Appeal Tribunal (LPAT) formerly the Ontario Municipal Board (OMB).  The property owner can pursue various claims for compensation in addition to the market value of the proposed land taken, including but not limited to:

-Business losses resulting from the expropriation;
-Relocation costs (i.e., costs to move the business or property, real estate commissions and legal fees) directly resulting from the expropriation;
-Loss of goodwill (i.e., where a business has to shut down and has been operating in the same location for a long period of time if it cannot be relocated);
-Injurious affection (i.e., where the Owner’s use and enjoyment of the land are disrupted or where a partial expropriation negatively impacts the value of the remainder of the property).

How much are Legal Fees?

The purpose of the Expropriations Act in Ontario is to make the property owner “whole.” If the property owner were paid for the fair market value of their land and any other damages attributable to the expropriation but had to pay expensive legal fees from any settlement, the owner would not be made “whole.” As such, the Act requires that the authorities pay all reasonable legal and professional (i.e., appraisal, valuators, planners, etc.) fees, which ensures that the property owner is not out-of-pocket.

If your property is being expropriated, it is imperative that you consult with a lawyer.  Call Goldstein Law – Expropriation Law Firm today. We often do not require any up-front retainers for expropriation-related matters.

What is the process under the Expropriations Act?

  1. Council considers a request to begin an application under the Expropriations Act to obtain land and/or an easement or a specific Town project. This permits the Town to issue a “Notice of Application for Approval to Expropriate Land” to the affected property owners so the expropriation process can begin.
  2. Affected property owners then have 30 days to request a Hearing of Necessity to determine whether the expropriation is fair, sound and reasonably necessary in the achievement of the Town’s objectives. The Hearing is conducted by a provincially appointed inquiry officer.
  3. If it is determined by an inquiry officer that the expropriation is necessary, or no hearing is requested, then the council will move to approve the expropriation plan. A Plan of Expropriation will then be registered within 3 months of this approval. The Plan registration automatically transfers title to the lands to the Town.
  4. Within 30 days of registered the plan, the Town must serve a Notice of Expropriation on the affected property owner advising of the expropriation.
  5. In order to obtain possession, the Town must send out a notice of possession indicating the date that the lands are required by the Town.
  6. The Town must then offer the affected property owner the full amount of appraised fair market value of the expropriated land and provide a copy of the appraisal report on which the value is based. If the property owner disagrees with this amount, and/or claims compensation or costs under the Expropriations Act, the hearing may be referred to the Board of Negotiation in an effort to reach a negotiation or the matter may be arbitrated before the Ontario Municipal Board (OMB).

Is Your Non-Competition or Non-Solicitation Clause Enforceable?

At Goldstein Law, we are a Toronto-based law firm that focuses on employment law. In the course of our employment law practice in Ontario, we frequently consult employers and employees on the drafting of employment contracts and the interpretation of various terms contained in employment contracts.  One of the recurring issues that we are retained to address is the enforceability of non-competition and non-solicitation clauses (also referred to as “restrictive covenants”).  After you are terminated from your employment, the last thing you want to do is “sit on the bench” and wait for a non-compete period to expire or risk a lawsuit for breach of the contract.

Conversely, employers often require these terms in their employment contracts to (1) protect confidential information that employees accumulate through their tenure of employment from being distributed freely to competitors; and (2) prevent the terminated employee from seeking out previous clients of the former employer, or colleagues, to leave and join a new venture.

In this post, we will define the terms “non-compete” and “non-solicit” and discuss some of the relevant factors that will determine whether your clause would be enforceable based on the common law in Ontario. Further, we provide employees with some practical advice in the event they are terminated from their employment and their previous employment contract contains a non-compete or non-solicitation clause.

What Is A Non-Competition Clause?

A clause that restricts an employees ability to join a competitor company or form a new business in the same or similar line of business to their employers. An example of a non-competition covenant in an employment contract of an employee that was terminated without cause from a consumer electronics store was drafted as follows:

Should you leave X company for any reason you shall not for a period of 6 months after the termination of your employment, without written permission, directly or indirectly, engage in any undertaking or business as an employee, principal, agent, or consultant with a Competitor. A “Competitor” includes a retail business operation in Canada which has as its principal business the sale of X. 

What is a Non-Solicitation Clause?

A clause in an employment agreement that restricts the employee from approaching former clients or colleauges of the employer to encourage them to leave for a new opportunity. An example from the same employment contract referenced above is as follows:

During the Restriction Period, you will not, directly or indirectly, contact, solicit or hire any employee, consultant, supplier or customer of X company, or assist any other person or business to do so, for the purpose of enticing the individual or entity to enter their relationship with X. 

Is the Non-Competition and Non-Solicitation Clause Enforceable?

As a general rule, Courts in Ontario are loath to enforce these provisions in employment contracts as they act as a “restraint on trade.”  In other words, the clauses act as a barrier to the former employee to earn income. As a result, the enforcement of non-competition clauses is especially difficult.  A Court is more likely to enforce a non-solicitation clause, which is designed to prevent the employee from contacting former clients for a defined period of time – but does not act as wholesale prevention from carrying on business in their specialized area.

What Factors make Non-Competition and Non-Solicitation Clauses Enforceable

Geographic Scope
The more limited the geographic scope, the more likely the clause will be found enforceable.  With the advent of social media, geographic restrictions are generally no longer found as pertinent to non-solicitation clauses, as prospective clients can easily be contacted online no matter where they reside. 

Length of Restriction
There needs to be an end date for the provision. While each fact scenario is different, the shorter the restriction, the more likely it is to be enforceable.

Scope of Prohibited Activity
Some clauses may prohibit the employee from working for a defined list of competitors, or it may be worded so broadly to prevent the employee from working for any company in a large industry. The more narrowly drafted and defined the prohibited activity, the more likely the clause will be enforceable.

This post was drafted by Jeff Goldstein, principal lawyer at Goldstein Law. If you would like more information about employment contracts generally or non-competition or non-solicitation clauses specifically, feel free to reach out to jeff@goldsteinlawyers.ca.

Real Estate Commissions – Payable upon Breach?

Real Estate Commissions – Are They Payable if I do not close?

In the past couple of years, we have been involved with numerous Agreements of Purchase and Sales in the residential real estate market that have not closed on account of both the vendor and purchasers default. More often than not, the buyer is the party that initiates the breach of contract, typically as a result of one of the following two reasons:

(1) The buyer is unable to obtain financing for the purchase of the property; and the Agreement of Purchase of Sale was unconditional; in other words, no clause in the Schedule “A” to the Agreement was included to protect the purchaser in the event financing could not be obtained to close the transaction; and

(2) The purchaser of the property was in the midst of selling their own property, the proceeds of which would be used to close on the Agreement of Purchase and Sale of their new property. However, the buyers of their existing property breached the contract; and therefore, they did not have the proceeds to close on their own deal. These can be complex scenarios where one breach of contract leads to a whole series of breaches, which can end up in protracted litigation.

What has been a consistent question from vendor and purchaser clients is the following: are realty commissions payable in the event a transaction does not close?

As you likely know, on the sale of real property, the vendor signs a Listing Agreement with a real estate brokerage, which markets the property in exchange for a commission (typically in the range of 5 to 6% of the purchase price of the property). In the event a separate brokerage identifies a buyer that inevitably tenders an offer that is accepted by the vendor, the brokerage, also called the cooperating broker, is typically entitled to 50.0% of the commission payable by the vendor to the listing brokerage (i.e., 2.5%).

The terms and conditions of the Listing Agreement between the vendor and real estate brokerage and the Buyers Representation Agreement between the purchase and brokerage must be reviewed carefully. Numerous cases in Ontario have been heard, that have required the defaulting party to pay the realty brokerage commission irrespective of whether a transaction closes, on the basis of a term in the Agreement, similar to as follows:

“The buyer [or seller] agree to pay such a commission even if a transaction is not completed if such non-completion is due to the buyer [or seller’s] default or neglect.”

Accordingly, prior to signing any type of Agreement with a realty brokerage, it is imperative that you review the terms and conditions thereof to ensure that you will not be hit with a large bill for commissions even if a transaction does not close, whether your fault or otherwise. If you have any questions about a real estate deal or dispute, contact Goldstein Law Firm in Toronto for a free consultation.