[dropcap]V[/dropcap]ictoria University has been embroiled in legal disputes for years with the tenants of the land it owns in Toronto’s upscale Yorkville neighbourhood. The most recent development is a decision from the Court of Appeal for Ontario dismissing appeals by both Victoria University and its tenants on a 2014 Superior Court decision. The 2014 decision called for the parties to return to the same arbitral panel that had previously overseen its rent reset negotiations in 2010.
Victoria University has been involved in two 100-year lease agreements since 1960 with Revenue Properties Company Limited and GE Canada Real Estate Equity Holding Company for 131 and 151 Bloor Street West, respectively.
While Victoria University owns the land, the brick-and-mortar is owned by the tenants. Both properties are the site of luxury retail and office spaces on the Bloor Street West corridor in downtown Toronto. The building at 131 Bloor Street West — commonly known as The Colonnade — also houses rental apartments.
Rent resets, land valuation disputes
The leases for the properties were fixed for a 30-year period, after which point, they were subject to a rent reset and the terms of leases had to be renegotiated.
The first rent reset occurred in 1990: Victoria University and the tenants disagreed on how a fair market value of the land should be assessed. The dispute could not be worked out in arbitration and was forwarded to the Divisional Court.
Revenue Properties argued that the fair market value of the property should take into account the existing building on the land and the constraints of the lease. This would have valued 131 Bloor Street West at $31,597,704 and 151 Bloor Street West at $27,733,772.
Victoria University’s view was that the valuation should treat the land as vacant and unencumbered by the lease, as it was when the lease was first signed in 1960. The appraised values would have been $54,134,046 and $17,027,010 for 131 and 151 Bloor Street West, respectively.
In 1993, the court ruled that the free market value was to be based on “what a seller and buyer, each knowledgeable and willing, would pay on the open market,” and that the lands should be “valued as if vacant,” but at the same time, not unencumbered by the constraints of the lease agreement. The properties at 131 Bloor Street West and 151 Bloor Street West were then valued at a free market value of $46,308,334 and $14,579,010 respectively. The decision also opened the door to another rent reset in 20 years.
A second rent reset occurred in 2010 and yet again, the parties could not agree on the valuation of the property.
Since the first reset, the provincial government enacted the Condominium Act, 1998, which allowed condominiums to be developed on leasehold properties, such as the Bloor Street West properties.
At the time of the lease agreement in 1960, condominiums were not yet a common fixture in Ontario. According to the rules set out in the Condominium Act, 1967, which previously governed their construction, condominiums were permitted to be built only on freehold property, meaning that they could not be constructed on lands that were subject to a lease.
An arbitral panel for a 2010 rent reset negotiation concluded that the value of the lands should be based on “development of a mixed-use commercial-retail and freehold condominium project.” The panel’s decision led to the rent for one of the properties being reset at approximately four times the previous amount.
Revenue Properties and GE Canada appealed this decision to the Superior Court.
The Superior Court judge determined that the panel had “erred in law” by choosing to value the lands based on potential freehold condominium development and transferred the issue back to the same panel for reconsideration. Both Victoria University and the property tenants appealed the decision.
Victoria University had asked that the initial decision resulting in a rent increase be restored, whereas GE Canada and Revenue Properties requested that the dispute be referred to a new arbitral panel.
The Court of Appeals dismissed both appeals, and the dispute was remitted back to the same arbitration panel.
Victoria University’s properties
In 2008, Morguard Corporation acquired Revenue Properties Company Limited and in 2013, Slate Asset Management bought GE Canada’s Toronto properties. Morguard and Slate could not be reached for comment. Neither Morguard nor Slate are named in the court documents.
Victoria University declined to comment on the lawsuits. Ray deSouza, Bursar of Victoria University, told The Varsity, “We cannot comment at this point as the matter is before the courts.”
The 131 and 151 Bloor Street West locations are not the only leased-out properties owned by Victoria University. The institution also owns the land to the McKinsey & Company building on 110 Charles Street West and an under-construction condominium at 8 St. Thomas Street.
These properties, as well as the Bloor Street West properties, have been the subject of scrutiny in other legal contexts as well. In June, a City of Toronto staff report revealed that Victoria University had allegedly avoided paying millions of dollars in property taxes on these lands, due to an oversight in the Victoria University Act. Unlike most universities in Ontario, the institution is exempt from paying taxes on leased properties regardless of whether or not they are being used for educational purposes.