Private Residences at Horseshoe Resort Inc. - ss. 74(1)

Headnote

Trades by a developer or licensed real estateagents in Residential Units that have a right (but not an obligation)to participate in a rental pool program not subject to section25 or 53 provided that purchasers receive certain disclosureprior to entering into an agreement of purchase and sale.

Statutes Cited

Securities Act, R.S.O. 1990, as am., 25, 53,74(1).

Condominium Act, R.S.O. 1990, as am.

Real Estate and Business Brokers Act, R.S.O.1990, as am.

Securities Act (British Columbia), R.S.B.C.1996, as am.

Rules Cited

Rule 14-501 Definitions.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, CHAPTER S.5,AS AMENDED (the "Act")

AND

IN THE MATTER OF

THE PRIVATE RESIDENCES ATHORSESHOE RESORT INC.

RULING

(Subsection 74(1))

UPON the application (the "Application")of The Private Residences at Horseshoe Resort Inc. (the "Developer")and Horseshoe Valley Resort Ltd. ("HVRL" andtogether with the Developer, the "Applicants")to the Ontario Securities Commission (the "Commission")for a ruling ("Ruling") pursuant to subsection74(1) of the Act that the sale by the Developer of residentialcondominium units (the "Residential Units")within a certain 77 unit condominium building that is to bebuilt by the Developer on a site (the "Site")in the Horseshoe Valley Resort (the "Resort"),near Barrie, Ontario and adjacent to a 102 room hotel knownas the Inn at Horseshoe Resort (the "Inn"),will not be subject to sections 25 and 53 of the Act;

AND UPON considering the Applicationand the recommendation of the staff of the Commission;

AND UPON the Applicants having representedto the Commission as follows:

1. HVRL owns and operates the Resort, includingthe Inn and the Resort's recreational facilities and amenities.

2. The Developer is a wholly-owned subsidiaryof HVRL.

3. The Developer has agreed to develop theSite by constructing a condominium building (the "Development")which will consist of 76 Residential Units, one unit comprisinga separate area to be used for conference and/or conventionfacilities and other various common areas and common facilities,including a fitness centre, that will be available for useby owners and other occupants of Residential Units. The Developmentis intended to both support and enhance the Resort by establishinglarger suites that will be attractive to conference and conventionparticipants and to both frequent and infrequent users ofthe Resort's recreational facilities and amenities.

4. Each Residential Unit will be sold fullyfurnished and will be comprised of a living/dining area, akitchenette, one bedroom and two bathrooms. Access to ResidentialUnits will be provided by private entrances opening into acommon hallway located inside the Development.

5. In addition to his, her or its own ResidentialUnit, each owner of a Residential Unit will be entitled toa proportionate share of the common property and the commonfacilities and other assets of the condominium corporation(the "Condominium Corporation") that willbe created pursuant to the Condominium Act, R.S.O.1998, S.O. 1998, c.19 (the "Condominium Act").The common property and common facilities of the Developmentwill generally consist of central interior hallways, one ormore lounge areas, a central lobby area which will includecheck-in facilities, a fitness centre and other additionalspace that may be required to support the Rental Pool Programdescribed in paragraph 9 below.

6. In accordance with the Condominium Act,each owner of a Residential Unit will be responsible for expenses,such as real property taxes, that are directly attributableto the Residential Unit and will also be responsible for his,her or its proportionate share of certain utilities and otherexpenses related to the common property of the CondominiumCorporation.

7. The Applicants will cause the CondominiumCorporation to enter into a property management agreementwith HVRL. The property manager will manage and administerthe Condominium Corporation's common property and will bepaid a management fee for its services. The property managementagreement will be terminable on 60 days prior notice by theboard of directors of the Condominium Corporation. The boardof directors of the Condominium Corporation will be electedby the owners of the Residential Units.

8. Each owner of a Residential Unit will beentitled, but not obligated, to enter into a rental managementand pooling agreement (the "Rental Pooling Agreement")with HVRL (in such capacity, the "Rental Pool Manager").The entering into of Rental Pooling Agreements with ownersof Residential Units will permit the Rental Pool Manager to(i) establish and operate a rental pool program (the "RentalPool Program"); and (ii) ensure compliance with theterms of this Ruling. It is anticipated that most owners ofResidential Units will participate in the Rental Pool Program.

9. By entering into a Rental Pooling Agreement,owners of Residential Units will become entitled to participatein the Rental Pool Program. The Rental Pool Program is anarrangement where revenues derived from, and/or expenses relatingto, the rental of an owner's Residential Unit by the RentalPool Manager are pooled with the revenues derived from, and/orexpenses relating to, the rental of all other ResidentialUnits located in the Development and that are participatingin the Rental Pool Program. All such pooled revenues and expensesare then shared by the owners of Residential Units participatingin the Rental Pool Program on a pro rata basis.

10. The Rental Pool Manager will be entitledto receive a fee for managing the Rental Pool Program thatis based upon the rental revenue generated by the Rental PoolProgram.

11. Each Rental Pooling Agreement will havean initial term of 5 years, which term will be renewable for4 subsequent terms of 5 years each. The term of the RentalPooling Agreement will renew automatically unless notice toterminate such agreement is delivered by an owner of a ResidentialUnit to the Rental Pool Manager no less than 90 days priorto the end of the relevant term. Subject to certain rightsto suspend the participation of a Residential Unit in theRental Pool Program, the Rental Pool Manager will have noright to terminate a Rental Pool Agreement.

12. Residential Unit owners participatingin the Rental Pool Program will be provided with the rightto occupy their Residential Units for no more, and no less,than 72 days per calendar year without restriction, exceptfor restrictions on use that are reasonably required to facilitatethe orderly management and administration of the Rental PoolProgram by the Rental Pool Manager. There is no limitationon the number of days per calendar year that an owner canoccupy his, her or its Residential Unit if such owner's ResidentialUnit is not participating in the Rental Pool Program. No ownerof any Residential Unit, however, will be entitled to renthis, her or its Residential Unit directly to the general public.

13. Each owner of a Residential Unit thatagrees to participate in the Rental Pool Program will be entitledto access the Resort's recreational facilities and amenitiesat a discounted rate.

14. Residential Units will be offered forsale in Ontario through the Applicants and/or agents of theApplicants licensed under the Real Estate and BusinessBrokers Act, R.S.O. 1990, Chapter R.4 ("LicensedAgents").

15. The offering of Residential Units willbe made in compliance with the Condominium Act.

16. The Applicants will deliver to an initialpurchaser of a Residential Unit, before an agreement of purchaseand sale is entered into, an offering memorandum (the "DisclosureDocument") that complies with the form of disclosurestatement required under the Condominium Act. The DisclosureDocument will also include additional information relatingto the real estate securities aspects of the offering preparedsubstantially in accordance with the form and content requirementsof Form 45-906F of the Securities Act (British Columbia),R.S.B.C. 1996, c.418, as amended ("Form 45-906F"),including, but not limited to:

(a) a description of the Development andthe offering of Residential Units;

(b) a summary of the material features ofthe Rental Pooling Agreement;

(c) a description of the continuous reportingobligations of the Rental Pool Manager, as the case maybe, to owners of Residential Units participating in theRental Pool Program as more particularly described in paragraph21 below;

(d) a description of the risk factors thatmake the offering of Residential Units a risk or speculation;

(e) a description of the contractual rightof action available to both initial and subsequent purchasersof Residential Units as more particularly described in paragraph18 below; and

(f) a certificate signed by the presidentor chief executive officer and chief financial officer ofthe Applicants in the form of the certificate required pursuantto item 19 of Form 45-906F.

17. An initial purchaser of a ResidentialUnit will have a statutory right under the Condominium Actto rescind an agreement to purchase a Residential Unit within10 days of receiving the Disclosure Document or a materialamendment to the Disclosure Document.

18. Initial purchasers of Residential Unitsand each subsequent purchaser of Residential Units will beprovided with a contractual right of action as defined inCommission Rule 14-501 Definitions. The DisclosureDocument will describe the contractual right of action, includingany defences available to the Applicants, the limitation periodsapplicable to the exercise of the contractual right of action,and will indicate that the contractual right of action isin addition to any other right or remedy available to thepurchaser.

19. No purchaser of a Residential Unit willbe obligated to participate in the Rental Pool Program. Nopurchaser of a Residential Unit will be provided with rentalor cash flow guarantees or any other form of financial projectionor commitment on the part of the Applicants or any relatedentity, save and except for the budget that must be deliveredto an initial purchaser of a Residential Unit pursuant tothe Condominium Act.

20. The economic value of the Developmentwill be attributable primarily to its real estate componentbecause Residential Units will be marketed as resort propertiesand will not be offered and sold with an emphasis on the expectedeconomic benefits of the Rental Pool Program.

21. A Rental Pooling Agreement will imposean irrevocable obligation on the Rental Pool Manager to sendto each owner of a Residential Unit participating in the RentalPool Program:

(a) audited annual financial statementsfor the Rental Pool Program that have been prepared in accordancewith generally accepted accounting principles and otherwisemade up, certified and delivered in accordance with theapplicable provisions of the Act as if the Rental Pool Programwas a reporting issuer for purposes of the Act; and

(b) interim unaudited financial statementsfor the Rental Pool Program that have been prepared in accordancewith generally accepted accounting principles and otherwisemade up, certified and delivered in accordance with theapplicable provisions of the Act as if the Rental Pool Programwas a reporting issuer for purposes of the Act.

22. A Rental Pooling Agreement will imposean irrevocable obligation on the Rental Pool Manager to deliverto a subsequent prospective purchaser, upon reasonable noticeof an intended sale by the owner of a Residential Unit participatingin the Rental Pool Program, and before an agreement of purchaseand sale is entered into:

(a) the most recent audited annual financialstatements (which include financial statements for the priorcomparative year) and, if applicable, the then most recentinterim unaudited financial statements for the Rental PoolProgram (the "Financial Information");and

(b) the Disclosure Document, if the proposedsale of the Residential Unit is to take place either priorto or within 12 months of the date on which permission tooccupy the relevant Residential Unit is issued or the purchaseof the Residential Unit by the initial purchaser is completed,whichever is later; or

(c) a summary of the Disclosure Document(the "Disclosure Document Summary"), ifthe proposed sale of the Residential Unit is to take placeany time following the expiration of a period of 12 monthsfrom the date on which permission to occupy the relevantResidential Unit is issued or the purchase of the ResidentialUnit by the initial purchaser is completed, whichever islater.

23. A Disclosure Document Summary that isdelivered to a prospective purchaser of a Residential Unitwhich is subject to a Rental Pooling Agreement will include:

(a) items 1, 3(1), 6, 7, 9(1), (2), (3)and (4), 10(b) and 16 of Form 45-906F with respect to theproposed sale, modified as necessary to reflect the operationof the Rental Pool Program;

(b) items 12(2), (3) and (4) of Form 45-906Fwith respect to the Rental Pool Manager under the RentalPooling Agreement, modified so that the period of disclosureruns from the date of the certificate attached to the DisclosureDocument Summary; and

(c) a certificate signed by the presidentor chief executive officer and chief financial officer ofthe Rental Pool Manager in the form of the certificate requiredpursuant to item 19 of Form 45-906F.

24. A Rental Pooling Agreement will imposean irrevocable obligation on each owner of a Residential Unitparticipating in the Rental Pool Program to provide:

(a) the Rental Pool Manager with reasonablenotice of a proposed sale of the Residential Unit; and

(b) a subsequent prospective purchaser ofa Residential Unit with notice of his, her or its rightto obtain from the Rental Pool Manager, the Financial Informationand either the Disclosure Document or Disclosure DocumentSummary, as the case may be.

25. A Rental Pooling Agreement will not requirean owner of a Residential Unit to give any person any assignmentof his, her or its right to vote in accordance with the CondominiumAct or Condominium Corporation by-laws, or to waive noticeof meetings of the Condominium Corporation.

AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest;

IT IS RULED, pursuant to subsection 74(1)of the Act, that the distribution of a Residential Unit by theApplicants or a Licensed Agent is exempt from sections 25 and53 of the Act, provided that:

(a) every purchaser of a Residential Unitreceives, prior to the completion of the purchase transaction,a copy of the Disclosure Document and a copy of this Ruling;and

(b) any subsequent sale of a ResidentialUnit acquired pursuant to this Ruling and that has participatedin the Rental Pool Program shall be a distribution unless:

(i) the seller of the Residential Unitis not a developer or an agent acting on a developer'sbehalf;

(ii) notice is given by the seller tothe Rental Pool Manager of the seller's intent to sellhis, her or its Residential Unit;

(iii) the prospective purchaser of theResidential Unit receives, prior to the completion ofthe transaction, all of the documents and informationreferred to in paragraphs 22 above; and

(iv) the seller, or an agent acting onthe seller's behalf, does not advertise, market, promiseor otherwise represent any projected economic benefitsof the Rental Pool Program to the prospective purchaser.

October 11, 2002.

"Robert W. Korthals"                    "H.Lorne Morphy"