Law Times

Page 12 January 19, 2015 • Law Times www.lawtimesnews.com Rental housing Condo conversions can be profitable but difficult By marg. Bruineman For Law Times onverting an apartment or other buildings into a condominium complex can be very profitable for the building owner. But aspects of an agreement, or even the conversion it- self, can be at the whim of the municipality. "Municipalities can ask a lot," says Marc Lean, a partner at Dickinson Wright LLP who focuses on transactional work in his commercial real estate law practice. Much of the process falls under the Plan- ning Act and the individual municipal plan- ning departments. And each municipality has its own demands and restrictions. The is- sue can become even more complex in com- munities with tiered municipalities in which the owner must satisfy the demands of the town or city and the regional government. But at the core is the need to protect tenants along with the supply of the rental stock, issues that could bring aspects of the Ontario Residential Tenancies Act into play. Municipalities can restrict conversions to buildings with a limited number of units. Others won't permit conversions at all if the rental vacancy rate is below a certain level. "The municipalities first and fore- most are there to protect tenants," says Shayle Rothman, founding partner of Real Estate Lawyers.ca LLP. Govern- ments are doing a constant balancing act as they focus on jobs, growth, afford- able housing, and protecting those who cannot protect themselves in an attempt to make decisions for the greater good. Rothman believes landlords of apartments demanding higher rents have a better chance of getting per- mission for conversion than more affordable units. More affordable apartments might undergo greater scrutiny by a municipality trying to preserve lower-cost rental housing. While there's merit in protect- ing the rental stock, Toronto real estate and commercial lawyer Mark McMackin points out that many condominium units, once sold, end up on the rental market. And those rentals aren't part of the Canada Mortgage and Housing Corp.'s vacancy calculations. But a key incentive for the owner of an apartment building to convert the building into condominiums is taxation. In Toronto, for instance, the mill rate for an apartment com- plex can be three times that of other residential properties. That incentive has prompted some apartment build- ing owners to convert just to reduce the tax rate without using the building as a condominium complex. Some communities, such as Barrie, Ont., have recognized the disparity and, over time, created an even playing field as part of their affordable housing strategies. A further restriction involves addi- tional protections under the Residential Tenancies Act. If the owner of an apart- ment building wants to occupy a unit, it has the right to bump the tenant. But the owner's right disappears when the unit becomes a condominium and the tenant remains there. Owners can't displace sit- ting tenants when they convert a unit to a condo. "They have the first right of refus- al to purchase the unit," says McMackin. McMackin points to the Toronto (City) v. Goldlist Properties Inc. cases in which aspects of the Planning Act related to condo conversions have undergone scru- tiny with the Ontario Court of Appeal delivering the last word. Central to the appeal was whether Toronto could use the official plan provisions of the Planning Act to control conver- sions. It dismissed the owners' ap- peal of a Divisional Court ruling in favour of the city. From the point of view of the housing stock, renovations often ac- company condo conversions. Rental units, subject to restrictions on rent increases, often undergo only lim- ited updating. During the conver- sion process, municipalities can de- mand services such as extra parking or even a park where there's surplus land. In Mississauga, Ont., the city focuses heavily on updating the building during the conversion pro- cess while Hamilton, Ont., doesn't have as many qualifications. A conversion to a condomini- um also results in a broader mar- ket because the owner can sell it as either residential or commercial. That's particularly beneficial when the rental market is poor, according to Lean. "As a benefit, it improves housing stock" along with low-cost home owner- ship, says Lean. On the downside, Lean has found a prejudice against conversions in plan- ning departments with official plans limiting what an owner can convert into condominiums and a prolonged timeline for the process. "There really is a feeling that if they reduce the barriers to conversion, there wouldn't be any rental stock left," he says. LT FOCUS Supported by the Association of Corporate Counsel (ACC) - Ontario Chapter and in partnership with Carswell, a Thomson Reuters business. Information Session Wednesday, December 7, 2011 5:30 - 7:00 pm Friday, December 9, 2011 8:00 - 9:30 am U of T Faculty of Law, Faculty Lounge 78 Queen's Park, Toronto No registration required. Please feel free to drop in anytime during these hours. Taught by U of T Faculty of Law professors, together with top international faculty from MIT-Sloan School of Management and expert practitioners. EVENT: For more information, call 416-978-1400 or visit: http://www.law.utoronto.ca/programs/GPLLM.html Part-time, Executive LLM program for corporate counsel and practising lawyers Untitled-7 1 2015-01-13 3:25 PM C Some municipalities make it difficult for the owners of rental units to convert them to condos. Photo: Ilya Akinshin/Shutterstock

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