Securities Act (Ontario) -- Application to vary a decision of the Commission -- Resale of residential condominium units included in a rental pool program are not subject to section 25 or 53 provided that prospective purchasers receive certain disclosure prior to entering into an agreement of purchase and sale.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, as am., ss. 25, 53, 74(1), 144.
Condominium Act, R.S.O. 1990, as am.
IN THE MATTER OF
THE SECURITIES ACT
R.S.O. 1990, c. S-5, AS AMENDED
IN THE MATTER OF
TORONTO STANDARD CONDOMINIUM CORPORATION #1703
(Section 144 of the Act)
WHEREAS the Ontario Securities Commission granted a exemption order on November 22, 2004 (the Prior Exemption Order) pursuant to subsection 74(1) of the Act exempting 1 King West Inc. (the Original Applicant) that the sale by the Original Applicant of residential condominium units within a certain condominium project built by the Original Applicant on a site located at 1-5 King Street West, Toronto, Ontario, (1 King West) will not be subject to sections 25 and 53 of the Act;
AND WHEREAS Toronto Standard Condominium Corporation #1703 (TSCC 1703 or the Applicant) has filed an application pursuant to section 144 of the Act for a variation of the Prior Exemption Order of the Commission such that the resale of Residential Units (as defined below) at 1 King West will not be subject to section 25 and 53 of the Act (the Variation Sought);
AND WHEREAS the Applicant has represented to the Commission, in support of the Prior Exemption Order, and confirms such representations made by the Original Applicant in support of the Variation Sought, that:
1. The Applicant was created by a Declaration under the Condominium Act 1998 (Ontario) (the Condominium Act) registered on September 9, 2005.
2. The Applicant is not a reporting issuer under the Act nor under any other securities legislation in Canada and has no present intention of becoming a reporting issuer under the Act.
3. The Applicant acts on behalf of the owners of 575 condominium units (the Residential Units) at 1 King Street West, Toronto, Ontario (the Lands); manages the common elements of the condominium corporation; and also directs the activities of its wholly-owned subsidiaries, TSCC 1726, King-Yonge Suites Inc., and Events at One King West Ltd., which in turn manage the Hotel Program (as defined below) and the food-and-beverage, housekeeping, valet parking, and other services that, in combination, function in the manner of a conventional hotel carrying on business as One King West Hotel and Residence (collectively, the Hotel Management).
4. The majority of the Lands are occupied by the Residential Units. The remaining portions are either common elements of the condominium corporation TSCC 1703 or freehold spaces owned by TSCC 1703.
5. Each owner is entitled to use a Residential Unit for any of the following purposes: personal residence, residential tenancy for a minimum lease period of one year, business activities as permitted by the City of Toronto by-laws, or, if it is a Residential Unit that is properly furnished, finished, and equipped, participation in short-term rentals (the Hotel Program) through the terms of the optional rental management agreement (the Rental Management Agreement) with the Hotel Management.
6. In accordance with the Condominium Act, each owner of a Residential Unit is responsible for expenses, such as real property taxes, that are directly attributable to the Residential Unit and is also responsible for the Residential Unit's proportionate share of utilities, maintenance, and various expenses related to the common property of the condominium corporation, which are collected by TSCC 1703 monthly (what are commonly known as "condo fees").
7. Each owner of a Residential Unit is optionally entitled to enrol such unit in the Hotel Program, provided that the furnishings, finishes, and equipment are at least equivalent to the then-current standard for units in the program as determined by the Hotel Management, and that the owner signs the then-current Rental Management Agreement.
8. For units that participate in the Hotel Program, the Hotel Management is entitled, but not obligated, to pay condo fees and property taxes on behalf of unit owners; these amounts are deducted from the Hotel Program's distributions, which are paid monthly to Participating Suite Owners (PSOs). The Hotel Management provides, at the expense of the Hotel Program, insurance to cover liability and all perils at a level that will cover replacement of the unit's contents to the current standard of furnishings, finishes, and equipment.
9. Revenues derived from the short-term rental of an owner's unit in the Hotel Program are pooled and then allocated on the basis of unit type and the number of days during the calculation period that the applicable unit is enrolled. Each PSO is then paid the unit's share of aggregate revenue, less the actual expenses, the contributions to the replacement reserve fund, and a fixed management fee per participating unit. Net revenues are calculated and paid on a monthly basis. The Hotel Management is entitled to a bonus of 5% (five per cent) of the difference between revenues and expenses on an annual basis, in addition to a monthly fee that recovers costs of management from the PSOs.
10. The Rental Management Agreement obligates the Hotel Management to send to each PSO:
(a) audited annual financial statements for the rental program that have been prepared in accordance with Canadian generally accepted accounting principles, certified and delivered with the applicable provisions of the Act and National Instrument 51-102 Continuous Disclosure Obligations as if the Hotel Program was a reporting issuer for the purposes of the Act; and
(b) monthly unaudited financial reports for the Hotel Program, along with the management's discussion and analysis.
11. The Condominium Act imposes strict requirements on the condominium corporation to make full disclosure to all owners of its revenues, expenses, long-term liabilities, and budgets. Such disclosure is also made to prospective purchasers by way of the statutorily-defined Status Certificate.
12. A majority of the Residential Units in the building currently participate in the Hotel Program, and it is the policy of the Hotel Management to maintain this level, and to seek to gradually increase the number of participating units as demand for hotel rooms rises.
13. As a provision of the condominium's statute-mandated Declaration, no owner of any Residential Unit is entitled to rent such unit on a short-term basis other than through the Hotel Program. Long-term leases for a minimum of one year, including the identity of all residents, must be formally registered with TSCC 1703. Any violations of this policy are strictly prohibited, and are subject to rigorous enforcement including the denial of access to the unit by unregistered tenants.
14. All of the units eligible for participation in the Hotel Program have been turned over by the Original Applicant to individual owners. Control and management of the entire property now rests strictly with the democratically-elected board of directors of TSCC 1703.
15. Prospective purchasers of Residential Units are not provided with any form of rental, cash flow, or deficiency guarantees or any other form of financial commitment or projection, by or on behalf of the Applicant respecting the Hotel Program or the sale of Residential Units, other than:
(a) Examples of financial calculations solely for the purpose of better explaining to prospective purchasers how hotel pooling proceeds are calculated; and
(b) the condominium corporation's annual budget.
16. Every owner of a Residential Unit of TSCC 1703 offered for sale shall, regardless of the current usage of the unit, provide to every prospective purchaser copies of the following information, which shall be available at cost from TSCC 1703:
(a) this Order;
(b) an explanation, in plain English, of the Declaration's restrictions on the use of units within TSSC 1703, particularly the prohibition of short-term rentals, along with the rights and obligations of participation in the optional Hotel Program;
(c) an example of financial calculations solely for the purpose of better explaining to prospective purchasers how hotel pooling proceeds are calculated;
(d) audited financial statements of the Hotel Program for the most recent full year, with comparative figures for the previous year, and the Hotel Management may, at its option, provide additional historical financial data;
(e) monthly unaudited financial reports to PSOs for the period since the end of the last year covered by the audited statements; and
(f) budgetary data required to be delivered pursuant to the Condominium Act.
17. The Rental Management Agreement imposes an obligation on each PSO to provide the Hotel Management with reasonable notice of a proposed sale of the Residential Unit. Obligations under the Rental Management Agreement (including the obligations set out in paragraph 11 above) shall continue in force regardless of any change in ownership of the Residential Unit.
18. The Rental Management Agreement shall not require an owner of a unit to give any person an assignment of any of his, her or its right to vote on any matter relating to the affairs of TSCC 1703.
AND UPON considering the application and the recommendation of staff of the Commission;
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to Section 144 of the Act, that the Variation Sought is granted, provided that:
(a) the prospective purchaser receives all of the documents and information referred to in paragraph 16 prior to entering into a Purchase Agreement;
(b) the notice referred to in paragraph 17 is given by the seller to the Hotel Management of the seller's intent to sell his, her, or its Residential Unit;
(c) the Applicant and Hotel Management comply with paragraph 15; and
(d) the seller, or an agent acting on the seller's behalf does not advertise, market, or promise any guaranteed or committed economic benefits of the Hotel Program to the prospective purchaser.
DATED at Toronto on this 28th day of May, 2013.