Recently, our office had the occasion to deal with two different circumstances regarding a program by the City of Toronto to promote the signing of “Heritage Easement Agreements” under the Ontario Heritage Act, in return for a reduction of municipal taxes on heritage buildings. In the first case, the client consulted us before entering into the Heritage Easement Agreement and, for the reasons set out below, we recommended against it. In the second case, without our advice, the client proceeded to enter into the Heritage Easement Agreement with the unfortunate consequences as described below.
The client is the owner of a building designated by the Ontario Heritage Act. Immediately adjacent to the heritage building, there is other land owned by the client, which has the potential for significant redevelopment. Unbeknownst to the client’s president, the client’s finance department had been approached by the City of Toronto dangling the incentive of a realty tax reduction for that part of the property containing the heritage structure. Understandably, the finance people were enthusiastic at any opportunity to reduce taxes, so they leapt at the chance to secure a tax reduction. In return, the City “simply” asked that the owner enter into a Heritage Easement Agreement.
From the perspective of the finance people, since the property had already been designated under the Heritage Act, they did not see any reason why the client should not enter into this Agreement. Indeed, the City had a prepared a draft Agreement which was under active discussion. Fortunately, before the Agreement was finalized, we were consulted by the client’s president. We were asked for our opinion as to whether the client should enter into the Heritage Easement Agreement with the City.
Our first question to the client was “Do you have future redevelopment intentions with respect to your neighbouring property?”. The client responded, “Yes, I certainly do”. Our response was, “Then in those circumstances, no, you should not enter into the Heritage Easement Agreement”. Our client took our advice, did not enter into the Heritage Easement Agreement and, accordingly, retained a lever or bargaining chip that can be used as part of the ongoing redevelopment approval process for the adjoining lands.
Client B had a similar situation to Client A in that it owned a significant structure that had been designated under the Ontario Heritage Act. Unfortunately, by the time the client came to us, the client had already entered into the Heritage Easement Agreement with the City; that is, it had been signed and registered on title to the property. As part of the client’s future redevelopment plans, the client came to us to provide an assessment as to the redevelopment potential of the remainder of the property.
When we pursued why a Heritage Easement Agreement had been entered into, we heard a familiar story; that is, the finance people of the company had been approached by the City dangling the promise of a tax reduction. Similarly, City staff had asked the owner to “simply” sign the Heritage Easement Agreement; which the client did. In doing so, the owner signed away the ability to make any changes to the property without having the concurrence of the City. Unlike the other situations described below, there is no appeal body that can overrule the City in the event that there is a disagreement between the owner and the City. A contract is a contract.
Understanding the degrees of Heritage Regulation
The moral of this comparative story is to understand the different levels of heritage regulation in order to recognize when a dangerous line is crossed whereby an owner gives away its rights. In its simplest form, the three categories are as follows:
- Inclusion on the "Heritage Register"
In the City of Toronto this is also known as “Listing”; i.e. being on a “list” of heritage properties. Until the Ontario Heritage Act was amended approximately six years ago, being “listed” or on the “Heritage Register” did not mean that much. However, with the changes to the Act, listing has taken on a greater significance such that a listed property can be denied a demolition permit for a period of 60 days in order to allow a municipality to proceed to the next step, namely, “designation” of the property by means of a by-law. Nonetheless, as will be detailed below, there are still ultimate rights of appeal resulting from a “Listing” and subsequent designation.
- "Designation of a Heritage Property
In this case, the municipality adopts a by-law “designating” the property as being of heritage importance. Please note that when I use the word “heritage” this means more than just “old buildings”. Indeed, there are extensive criteria relating to architectural matters, cultural heritage, even landscape issues, which a municipality can use to designate a property. Properties are designated as individual properties under Part IV of the Heritage Act or as part of a “Heritage Conservation District” under Part V of the Heritage Act. The key thing is that in respect of either an individual designation or being part of a district, the owner still retains the right to appeal a refusal to issue a demolition permit for the building to the Ontario Municipal Board. Thus, the owner remains on the positive side of the dangerous line detailed in the two examples set out above.
- Heritage Easement Agreement
Once an owner enters into a Heritage Easement Agreement, the line has been crossed and the owner gives up its right to appeal the matter to the Ontario Municipal Board. A Heritage Easement Agreement is just like any other contract; that is, it can only be amended with the concurrence of both parties. Particularly in a highly charged political environment (which most heritage matters are), the ability to get the concurrence of the City to amend an existing Heritage Easement Agreement can be extremely limited. Accordingly, the developer who has a Heritage Easement Agreement executed and registered on title to its property, is negotiating with the City with one arm tied behind its back. Unlike Client A, who still maintains the ability to apply for a demolition permit and could appeal any refusal of that permit to the Ontario Municipal Board, Client B has given up that right.
Therefore, as we have seen, this is indeed a cautionary tale. A client should only consider entering into a Heritage Easement Agreement if it secures something substantially in return. The reduction of taxes under a program that can be rescinded by the City at any time is not such a benefit. Rather, the prudent owner will retain this lever or bargaining chip until such point in time as it can be used in return for redevelopment rights for the property or its adjacent lands.