Law Times

LAw times • August 5, 2013 Page 7 COMMENT Advising buyers about development charges key to standard of care for real estate lawyers A s I wrote this column, Toronto city council was in the midst of deferring a decision to impose a massive increase in development charges on new building permits. In the Toronto residential market, the burden of such development charges would essentially fall on condominiums. While development charges would also apply to newly constructed freestanding homes, such infill sites are now few and far between in Toronto. The new development charges, which seem to have the political backing of Toronto's usually tax-shy mayor, would see the fees almost double, on a typical two-bedroom condo unit, to about $24,000 from approximately $12,000 per unit. Council has deferred the decision to increase Toronto's development charges to September, and while a committee mulls over Toronto's options through the summer, it might be a good time to consider the legal backdrop for them. Of course, if you regularly act for developers or municipalities, then the legal framework of development charges would be second nature to you. But for most real estate lawyers, development charges remain a bit of a legal mystery. Although various municipal lot levies had always been a fact of life in new-home construction in Ontario, the government enacted the original Development Charges Act "to regularize a diverse system of municipal charges or levies imposed on development." In theory at least, the act brought "certainty, uniformity, and predictability" to the funding of municipal and school capital infrastructure. The statute provides municipalities with a financing tool opinion, development charges premised on the principle that need to be tied to or limgrowth pays for growth as new The Dirt don'tto the services required by ited developments create addia specific development. In fact, tional demands on municipal development charges aren't a infrastructure and that the cost payment for specific services should be borne by new buildneeded to facilitate the deing permits rather than the velopment of specific lands existing tax base. (unlike, for instance, s. 37 conDevelopment charges are a tributions). Accordingly, even form of tax that can, but need if a developer can prove unnot be, imposed on new conJeffrey Lem equivocally that its proposed struction developers as a precondition for issuing a building permit project requires no new municipal infrain order to fund increased hard and soft structure at all, development charges may capital costs for certain types of munici- still be imposed. There is, of course, much more to pal infrastructure. Of the various provinces that allow their municipalities to talk about in terms of the mechanics of impose development charges, Ontario is development charges, but a real estate considered fairly liberal in terms of what transactional lawyer closing deals in the infrastructure capital costs that can be trenches doesn't need to know anything recouped through them. Permitted hard more. What transactional real estate lawcosts include water supply, wastewater, yers most need to know is that developstorm water, highways, roads, and elec- ment charges are increasing at what some trical power infrastructure. Permitted would say is an alarming pace and are alsoft costs include, amongst other things, most always an adjustment in favour of a libraries, fire services, police, and ambu- developer, builder or vendor to be borne lance services. There's a list of specified entirely by the purchaser. This is a fairly exclusions (oddly enough, hospitals and well-known adjustment, and buyers of solid waste management, for example), new commercial and residential properand there's also a general 10-year rule that ties (especially in the suburbs outside of requires a municipality not to charge for Toronto) are quite aware that developan anticipated level of future service that ment charges will be a sizeable transaction exceeds the average level of that service cost to be budgeted for on closing. Of course, given that development during the preceding decade. John Mascarin, a certified specialist in charges are an optional funding tool for municipal law at Aird & Berlis LLP, teaches municipalities and vary significantly from development charges as a component of his jurisdiction to jurisdiction, a real estate planning law course at Osgoode Hall Law lawyer acting for the purchaser is in no School. Mascarin explains that develop- position to realistically estimate the dement charges might be better understood velopment charges that will be adjusted for what they're not. Contrary to popular for on closing until the vendor's lawyer issues the statement of adjustments. From a standard of care perspective, it should be enough, however, to simply advise the purchaser that, ordinarily, development charges are the largest single line-item adjustment and may add thousands of dollars to the balance due on closing but that ultimately the amount depends on the development charges that were actually paid by the vendor to the municipality to acquire the building permit. Counsel of perfection may go on to suggest possible amendments to the agreement of purchase and sale either to try to delete the development charges altogether or, more likely, cap the aggregate of the adjustments to a specific amount. In my view, a solicitor's duty to better the deal for the purchaser is fairly limited (and rightly so). In a hot market, vendors will generally not agree to any such amendments and counsel has to be careful not to anticipatorily breach in their zeal to improve existing deals. Likewise, purchasers will often elect not to try to renegotiate, especially if the deal has already been signed, they sense that other buyers from the same developer haven't done so, and they perceive that the market for those units remains hot. As long as the purchaser has been advised of the adjustment for development charges and the opportunity to try to amend the agreement to limit such exposure if there's a business appetite to do so, it lies not in the mouth of a buyer to then complain about the adjustment for development charges when the bill finally comes in. LT Jeffrey W. Lem is a partner in the real estate group at Miller Thomson LLP. His e-mail address is jlem@millerthomson.com. First Nations have iron grip on Ontario's economy O ntario's economic future is in the hands of First Nations who effectively control all resource development. Moving forward, there will be no oil flowing in a pipeline nor will there be any copper, gold, nickel, uranium or chromite pulled from the earth unless a First Nation has approved and is getting its cut. It's the result of years of neglect coming to fruition, says Bill Gallagher, a Waterloo, Ont.-area lawyer whose book, Resource Rulers: Fortune and Folly on Canada's Road to Resources, is turning heads. "Natives have amassed an unprecedented legal winning streak in the last decade, 185 wins almost in a row, across the resources sector," says Gallagher, who spent 30 years negotiating deals in the resource sector, including at Voisey's Bay, N.L., where he sees parallels with Ontario's Ring of Fire mines. "Ontario is behind in dealing with this." The province is also the target of a $100-million lawsuit brought by Solid Gold Resources Corp. this year. The northern gold-mining explorer staked a claim in 2007, but before exploratory drilling, it was advised by the province, following direction in Haida Nation v. British Columbia (Minister of Forests), to consult with the local Wahgoshig First Nation. Solid Gold's former president, Darryl Stretch, pushed back. Absent legislation, he argued, it was the Crown's duty to consult. up because of uncertainty. When drilling started, the It's bad news because minWahgoshig First Nation seQueen's ing generates about $10 bilcured an injunction that was Park lion a year and drives exports, overturned on appeal. construction, transportation, However, before the new and other sectors. case could be heard, the govOntario needs mining and ernment changed the Mining front and centre now is the Act, effective April 1, to reRing of Fire project where up quire companies to file a deto $120 billion in metals, estailed activities plan and conpecially chromite, await. sult with First Nations before When former premier they get a permit to drill, and Ian Harvey Dalton McGuinty unveiled thereby formally offloaded the the plan to mine chromite Crown's obligation to consult. The changes rendered the Solid Gold and other metals, he boldly proclaimed case moot and Stretch was ousted from operations would begin in five years. his position even though, as a major How wrong he was. Gallagher says such ignorance is shareholder, he's now suing the province rampant and Ontario has been asleep for damages. "It was a fiasco from the beginning," at the switch for too long, although the says Stretch, noting the appeal judge Mining Act changes are a step in the agreed the Crown had the duty to con- right direction. "There's a huge business case to strike sult prior to the rule changes. "They threw me under the bus. Cer- a new deal with natives and a national tainty of title and access is everything to revenue-sharing scheme," he says. "Natives are demanding new fiscal our industry. It's every man for himself against 133 hostile third-party govern- and resource relationships with Canada ments. Soon, there will be no mining and it's in Canada's fiscal interests to see that they get it." and 300,000 jobs are at risk." That's the issue, counters Stretch, beOntario has more than 600 active exploration projects, most of them operating cause one state is effectively putting the hand to mouth to fund exploration. For management of resources into the hands many, the new rules mean too much time of another state. "Investors don't like uncertainty" lost and too much in extra costs and some junior exploration companies have already and will be wary that a deal today may pulled out of Ontario as investment dries change at the next stage when the stakes www.lawtimesnews.com get higher, he says. More worrying for the future of the industry, he says, is that many First Nations will oppose mining outright and thereby deny Ontario the access to resource revenues it desperately needs. Gallagher and Stretch don't agree on many things but they both concede it's a perilous situation. "The potential economic and fiscal impacts make this the biggest underreported business story of the decade," says Gallagher. "Our relationship with natives is our national blind spot. We're in denial. Long overdue solutions are now pressing economic priorities. The highest order of political will must be brought to bear." Natives, he says, see themselves as resource gatekeepers and, as such, prospective developers should first seek social licence with those communities before drawing regulatory permits. The questions remain, however: Will some First Nations use their authority redress past wrongs by holding the province hostage? Will yet others stall growth because they're fundamentally opposed to any kind of development? And how will voters react when they learn they're not in the driver's seat? LT Ian Harvey has been a journalist for 35 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ianharvey@rogers.com.

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