Real Estate & Urban Development @ Gowlings: June 28, 2011 - Volume 2, Number 2

Edited by Manuel A. Martins

CITY OF TORONTO - REPEAL OF ZONING BYLAW 1156-2010

By Brian T. Parker

In our last Issue we reported on the growing prospect of a repeal of the Bylaw which is less than one year old and which took City planning staff years to prepare at an estimated cost of over $6M.

The Bylaw was under appeal by over 600 parties and was in limbo at the Ontario Municipal Board awaiting hearing.  At issue was the unmanageable complexity of the Bylaw and the multitude of new standards that were being added into the Bylaw right up until the day of its adoption and all under the guise of "harmonization".

At its meeting of March 24, 2011, the City of Toronto Planning and Growth Management Committee voted overwhelmingly to repeal the document.  A statutory meeting was held by this Committee on May 10.  At that meeting there continued to be stinging criticism of the Bylaw. Many councilors referred to the eight year process as the biggest monumental disaster created by David Miller, the City's previous Mayor.  There was general agreement that it made more sense to press the reset button and give the Bylaw a major overhaul, rather than spending many more millions of dollars trying to defend it at the Ontario Municipal Board.

City Council followed through and on May 18, 2011, it passed City of Toronto Bylaw 603-2011 repealing the Bylaw.  City Council also provided the following direction to City planning staff:

1. "City Council direct the Chief Planner and Executive Director, City Planning, to conduct consultations with the public and appellants to By-law 1156-2010 and report to the Planning and Growth Management Committee at its meeting on October 6, 2011.
2. City Council request the Planning and Growth Management Committee to schedule a Public Meeting at its meeting on November 8, 2011, for the purpose of considering whether to re-enact By-law 1156-2010 with any proposed revisions resulting from the consultation with appellants and councillors so that the new By-law can then be considered for enactment by City Council on February 6, 2012.
3. City Council direct that the scope of the revised harmonized zoning by-law not be greater than what was contained in By-law 1156-2010 but can be reduced.
4. City Council direct the Chief Planner and Executive Director, City Planning, and  the City Solicitor to report to the Planning and Growth Management Committee at its  meeting on November  8, 2011, on transition provisions that may exempt rezoning and minor variance applications for inclusion in the Zoning By-law to be presented to City Council on February 6, 2012.
5. City Council request the Chief Planner and Executive Director, City Planning to prepare an amendment to all existing Zoning By-laws to restrict a propane transfer, handling and storage facility from being located within 500 metres from any zone that permits housing and to establish a Working Committee with stakeholders to consider this amendment.
6. City Council request the Chief Planner and Executive Director, City Planning to prepare an amendment to all existing Zoning By-laws to restrict concrete batching facilities from being located within 500 metres from any zone that permits housing and to establish a Working Committee with stakeholders to consider this amendment."

As a side note, City Council referred the following motion to the Chief Planner and Executive Director, City Planning for consideration as part of the City's recently initiated Five Year Official Plan Review:

Moved by Councillor Giorgio Mammoliti:

Going Forward

Planning staff will now commence further consultation both with the general public and with specific objectors to the Bylaw to try and resolve as many appeals to the Bylaw as possible.  Staff are attempting to have a polished version of the Bylaw back before City Council for adoption early in 2012.  Along with the repeal of the Bylaw, City Council initiated two other significant actions on May 18:

1. To start the process of drafting amendments to all of the City's zoning bylaws to prohibit the location of propane transfer, handling and storage facilities, and concrete batching facilities, within 500 metres of all residential zones; and,
2. In an effort to stimulate economic activity on certain of the City's under-performing industrial lands, to consider loosening current zoning restrictions and allowing these lands to be redeveloped for mixed-use, residential and commercial purposes.

This latter initiative represents a potentially significant policy departure from the City's former administration and one that deserves close attention by any industrial landowner who feels his lands may qualify for special policy attention.

GOING GREEN AND STAYING GREEN: Using Your Lease to Achieve Your Green Objectives

By Laurie J. Sanderson

Green initiatives including the concept of "green leasing" are increasingly becoming part of mainstream real estate strategies. This is in part due to the international concern about climate change and an effort to reduce our environmental footprint, enhance our brand image and reduce operating costs. In order to integrate environmentally sustainable initiatives into the commercial real estate process it is important to have both the landlord and the tenant work collaboratively to pursue and implement these initiatives.

While there are other sustainable designations, the two main certifications in Canada are the Leadership in Energy & Environmental Design ("LEED") and the Building Owners & Managers Association Building Environment Standards ("BOMA BESt").

Publically Available Forms of Green Leases

What I have noticed in my practice is that once a tenant has decided to pursue green office accommodation, it is often the case that we (both the tenants and the landlords) get so involved in pursuing this goal that we are likely to forget about the day after certification, and what happens next.  I would like to suggest that both landlords and tenants need to be more involved in ensuring that the building continues to be operated as a green building – that is, we need to shift our focus from going green to staying green.

I believe that it is fair to say that many of the green buildings that are being built to be leased to commercial tenants are being pursued as a consequence of a tenant RFP. These tenants tend to be very large and powerful and will often be the only tenant or essentially the only tenant of the building. In these cases, the tenant's participation in the ongoing operation of the property will be much more involved than a tenant leasing smaller premises in a multi-tenanted facility.  I suggest, however, that all tenants leasing space in a green building should consider including an environmental management plan as part of their green lease. Stronger tenants may have the leverage to go further and mandate the landlord's compliance with the sustainability provisions of the lease, and in some cases, even participate in the landlord's annual budgeting process with respect to operating costs.

Despite the fact that it is, in my experience, the tenants that are driving the construction of green buildings, it is the landlords that have responded with green lease documentation.  This is not surprising given most tenants do not have their own standardized lease documentation.

In Canada, there are two forms of publically available green leases – both prepared by owner organizations – REALpac and BOMA, respectively.

REALpac stands for Real Property Association of Canada. Membership in REALpac is limited to senior executives of public and private real estate companies. BOMA is an acronym for Building Owners and Managers Association.

BOMA's Guide to Writing A Commercial Lease, Including Green Lease Language offers a model lease that has been written by an American lawyer and published in 2005. It may be downloaded from the BOMA International website for a charge of $69.00.¹   The BOMA green lease is very useful in that it not only highlights the green lease provisions (in green no less), but includes, by margin notes, a discussion of the proposed provisions.

The REALpac Office GREENLEASE National Standard Lease for Single-Building Projects – 1.03 – 2010 can be downloaded free of charge from the REALpac website.²  It is the one that I see most often used – not in its full form – but rather as a source of green lease provisions. Additionally, REALpac has also published REALpac Green Lease Guide for Commercial Office Tenants providing a checklist of important elements to include in a green lease.³

When acting for the tenant, it needs to be remembered that each of these leases has been written from the landlord's perspective.  In fact, the Realpac green lease includes the following statement on the first page:

"The "environmental" elements of this Lease contemplate a Landlord-centric lease structure, with the Landlord driving the environmental objectives, environmental decision making and compliance. However, the "environmental" elements of this Lease are easily transposable to a tenant-centric model, and can be negotiated into a "shared responsibility" model as well."⁴

What is particularly useful in the REALpac green lease is the inclusion of a form of environmental management plan. I will discuss this further below.

Updating Commercial Leases to Address Sustainability Issues

While the usual forms of commercial lease may not yet include specific provisions relating to sustainability issues, they do, however, include clauses of general application which may be used by the landlord to address many of the landlord's concerns in this regard.  For example, while the usual forms of absolutely net lease may not specifically permit the landlord to recapture its costs incurred to apply for a LEED or BOMA Best certification of the building, the operating costs definition is probably broad enough for it to do so. Further, the lease will in all likelihood already permit the landlord to install meters to measure the tenant's consumption of utilities, and to permit the landlord to directly charge back the tenant for any disproportionate usage. It will also invariably leave the landlord responsible for providing cleaning and garbage removal. In most cases this will permit the landlord to stipulate the use of eco-friendly cleaning products and recycling should it so desire. It also likely includes a requirement that the tenant abide by the landlord's rules and regulations and permits the landlord to pass further rules and regulations over the course of the term, which may be used to require the tenant to abide by the landlord's sustainability requirements. That being said, we can (and should) go a lot further in addressing sustainability issues.

More specifically, most commercial leases do not currently stipulate any shared or unilateral environmental objectives.⁵ Furthermore, few leases incorporate provisions contemplating the reduction of waste production or require that the tenant improvements match the standards of LEED CI or equivalent. Moreover, most existing commercial leases will not require certain types of materials to be used or mandate the use of environmentally friendly products by the parties. In fact, most leases will stipulate that the tenant must use new (or as new) building materials. The opposite of what a green lease would require in terms of using recycled building products. A thoughtfully crafted green lease will provide a legal framework to incorporate environmentally sustainable practices into the leasing process.

Mutual Concerns and Successful Collaboration

As noted above, both the BOMA and REALpac sample green leases are prepared by landlords for landlords. Apart from having the landlord join in the environmental management plan, the REALpac lease does not for the most part require the landlord to do anything with respect to the sustainability of the building.

That being said, there is, in my view, a real mutuality of concerns between the landlord and the tenant in respect of green leasing issues. The landlord is concerned about obtaining and maintaining the building's sustainability certification.  It will also be concerned about being in a position to meet any new environmental obligations that may be passed during the course of the lease. In a triple net lease, it will also want to ensure that it can recover all of its costs in meeting these obligations.

Likewise, the tenant will have the same concerns except that, being the ultimate payor of these costs, it will want to ensure that the return on its investment is a reasonable one. 

Ultimately, pursuing a successful green initiative through the vehicle of a green lease requires the landlord and tenant to work collaboratively to establish key elements of sustainable practices and concrete methods of implementation. This approach was echoed by the CEO of REALpac when he stated "[w]e need to make sure leases are structured to create compulsion, to create incentive, and to create flexibility, for both parties to do the right thing."⁶

Green Leasing: What Landlords and Tenants Should Consider

While green leasing raises multiple issues, I suggest that the main provisions that both parties will want to consider when entering into a green lease are the operating costs, utilities, landlord and tenant work, access and relocation rights, and the assignment and subletting provisions.

Operating Costs

In addition to the usual operating costs it may recover from the tenant, the landlord may want to include its costs to apply and obtain certification and to re-certify its building. Additionally, I suggest that the landlord will want to recoup its costs to monitor utility consumption, to carry out benchmark comparisons, and to commission and periodically re-commission its base building equipment and systems. It may also want to recover its costs of training its building operators both with respect to sustainability initiatives generally, and more specifically, with respect to the ongoing operation of the building equipment.

Without getting into the merits of the landlord's claim to recover these costs, the tenant may wish to require the lease include a corresponding obligation on the part of the landlord to certify/re-certify the building, and to monitor and report to the tenant utility consumption within the building.  The tenant may also want to require the landlord to periodically inspect its base building equipment to ensure that it is operating effectively and efficiently.

Tenants with very significant bargaining power (e.g. the sole or majority occupant of the building) may also be in a position to negotiate the right to participate in the landlord's annual budgeting process and to require or veto certain expenditures. Not all sustainability practices enjoy what the tenant may view as a reasonable rate of return. Given the tenant will be the primary beneficiary of these expenditures and the corresponding primary payor of these costs, a tenant of sufficient bargaining power will want to be at the table when these expenditures are being considered.

Utilities

Assuming the landlord is concerned about the ongoing operation of the building in accordance with green objectives, the landlord will want the right to monitor utility consumption and usage. It is an absolute truism that performance cannot be improved in the absence of monitoring and benchmarking.  The landlord will also want the right to require the tenant to install and use energy efficient equipment in the leased premises, and in all likelihood, lighting controls and day-lighting measures.

As noted above, I suggest that the parties include an environmental management plan ("EMP") as part of their green lease to encourage and promote the implementation of specific environmental objectives on the part of each of the landlord and tenant.

Although the EMP attached to the REALpac lease includes as stated goals the reduction of energy use, each statement relating to these provisions is made by the tenant alone, as are the agreements to permit the installation of smart meters and the like. Moreover, the landlord's obligations with respect to the environmental objectives are stated as intentions, as in: the tenant acknowledges that it is the landlord's intention to operate the building so as to provide certain stated electricity, natural gas, and water consumption levels, a specified waste diversion rate and indoor CO2 levels. Further, the REALpac EMP is written, at the parties' option, to be either mandatory or merely a guideline (that is, without recourse).

I suggest that for tenants with any bargaining power, that the EMP be amended to state the sustainability objectives as a mutual intention or obligation, as the case may be, rather than an acknowledgement by the tenant alone.

Again, a tenant with some bargaining power, may also wish to require the landlord to monitor utility usage and perhaps, regulate excessive or disproportionate usage by the other building occupants and to mandate the landlord to require all occupants to use energy rated equipment, lighting controls and the like.

Landlord and Tenant Work

The other provisions of the lease that are most impacted by sustainability requirements are the work sections.  I include in this, the initial construction of the building, the tenant's alterations and restoration requirements and the landlord's ongoing maintenance and repairs, and that part of the lease dealing with damage and destruction.

The usual provisions of the lease should be amended to not only require the tenant to perform its work in compliance with, and not in a manner that will adversely affect, the certification of the building.  The landlord should, likewise, make these same promises to the tenant.  A stronger tenant may extend this to require the landlord ensure compliance by the other occupants of the building.

In addition to the usual provision that the landlord will target XX (e.g. LEED Gold) certification of the building, and the reciprocal covenant by the tenant to target XX certification of its improvements, a green lease will typically require that all tenant construction, material purchases and disposal of waste must:

• be performed in accordance with the landlord's/agreed sustainability requirements
• in a manner consistent with (and in a manner that will not adversely affect) certification and will stipulate:
• the hiring of qualified design and construction professionals who have served on other LEED certified projects
• that all contractors/subcontractors/trades be knowledgeable and committed to green building practices
• the use of an indoor air quality management program
• the recycling of construction waste
• the use of locally sourced materials
• that the landlord (and in the case of a strong tenant, a reciprocal right on the part of the tenant in respect of the landlord's work) is permitted to attend the tenant's project team meetings, and
• the requirement that the tenant (and in the case of a strong tenant, a reciprocal right in favour of the tenant in respect of the landlord's work) communicate to the landlord, the credits that are being sought and providing copies of the tenant's project scorecard.

The Landlord's Access Rights

A landlord's green lease will allow it to access the tenant's premises for the purpose of installing meters to among other things, monitor the tenant's consumption of utilities, to carry out its cleaning and garbage removal obligations and to monitor, benchmark and test greenhouse gas emissions and the tenant's compliance with the green lease provisions.

In exchange for agreeing to this, the tenant may want to require the landlord to provide the tenant with copies of these reports, and in the case of tenants with significant bargaining power, to require that the landlord separately meter any disproportionate consumption by the other occupants of the building.

The tenant may also wish to require the landlord to use eco-sensitive cleaning products, at least in the tenant's own premises, and that it recycle the garbage that it collects. We have all heard of instances where the tenants are dutifully sorting their garbage and it is being mass disposed of by the landlord in the local landfill.

Landlord's Relocation Rights

Most commercial leases, at least those that are for tenants leasing smaller premises, permit the landlord to relocate the tenant to alternative premises within the building.  While I say "in the building" this is not always the case. Some leases permit the landlord to relocate the tenant to another building in the same project.  If the project includes, as they often do, older buildings and newer ones that have been certified, the tenant will want to restrict their move to a building with the same or higher LEED or BOMA Best certification.  The tenant will also want to ensure that the building to where it is being relocated meets or exceeds the energy and carbon efficiency of it current building.  In addition, the tenant will want to ensure that its new premises meet or exceed the green rating of its current space.

As noted above, many leases still require the tenant to use new or as new building materials. An environmentally conscious tenant will want to change this to allow it to remove and relocate its leasehold improvement and building materials.

Assignment and Subletting

Finally, a few words about the assignment and subletting provisions of the lease. Green leases now typically give the landlord the right to reject and withhold consent to a new tenant or subtenant if the landlord has concerns that the transferee may not abide by the sustainability provisions of the lease or if the landlord is concerned that the transferee's use may not be consistent with or may make it more difficult to certify or recertify either or both the premises or building. This will be particularly concerning to the landlord if the environmental management plan attached to the lease is a guideline rather than a statement of mandatory requirements.  The tenant should also be similarly concerned given it is not released of its obligations on assigning the lease. This of course will be more of an issue to the tenant if the EMP is a statement of mandatory requirements rather than just a guideline.

A tenant must also take these matters into account when it is proposing to sublease its premises; particularly if the tenant will be sharing its space with the subtenant.  Again, the tenant should be particularly concerned if the head lease does not include green requirements. In this case, the tenant will want to be sure to include in its sublease, green requirements as legal obligations of the subtenant.

Final Words on Green Leases

A green lease may also specifically detail things like environmentally preferable cleaning products, comprehensive landlord and tenant procurement guidelines, requirements for natural or low water consumption landscaping, the ability to specify higher cost but sustainable energy sources, recycling practices, efficient appliances and fittings, waterless urinals and low flow faucets and taps, efficient thermal control systems, the use of EnergyStar rated office equipment, as for example, photocopiers that re-use paper, or print double-sided, ventilation or fresh air requirements, allowable cooling, heating and humidity and cost apportionment of capital costs of new equipment.

Post-Certification – Staying Green

Attaining certification is only one part of the equation in the pursuit of sustainable green buildings. What happens afterwards is equally important. Landlords and tenants must continue to work together to achieve the green targets they have set for themselves, and the lease can, and should, be used as an effective tool in the pursuit of this common goal.

CHANGES TO ONTARIO'S RECORD OF SITE CONDITION REGULATION COME INTO EFFECT ON JULY 1, 2011

By Harry Dahme

The Record of Site Condition Regulation (Ontario Regulation 153/04) was amended on December 29, 2009 and again most recently in May, 2011. While there were some changes which took effect immediately, the great majority of the changes come into effect on July 1, 2011.

The Record of Site Condition Regulation made pursuant to the Environmental Protection Act sets out the process and the standards to be used for the purposes of determining whether a property is "clean".  Using the procedures and standards made pursuant to this Regulation, an owner may file a Record of Site Condition ("RSC") on the Environmental Site Registry. The effect of filing a RSC on the Registry is that, subject to the information in the RSC being accurate and subject to no new information coming forward indicating that site conditions are different than as reported in the RSC, no order shall be issued by the Ministry of Environment in respect of the contaminants discharged into the natural environment on the property before the certification date where that contaminant was on, in or under the property as of the certification date. A RSC is often used as a determining factor for whether or not to conduct remediation of property or whether to purchase or lend on property.

The changes to the Regulation which come into effect on July 1, 2011 include the following:

• New Standards. Not only do many of the numerical Standards for the different property uses and different site conditions change (in the majority of cases the Standards become more stringent) there are also now new Standards for Background Site Conditions, shallow soils and for use within 30 metres of a water body.
• The requirements for a Phase I Environmental Site Assessment have been revised and have become more extensive, where a Phase I Environmental Site Assessment is to be used in support of a RSC.
• The requirements for a Phase II Environmental Site Assessment have been revised and have become more extensive, where a Phase II Environmental Site Assessment is to be used in support of a RSC.
• The amended Regulation also now mandates the completion of a Phase II Environmental Site Assessment where a property has been used for an industrial use or certain specified commercial uses.

Since the publication of the changes to the Regulation there have also been a number of Technical Guidance Documents which have been published including the Soil Vapour Intrusion Assessment, all for the purpose of providing a greater direction as to the requirements to be met for the purposes of filing a RSC under this amended Regulation.

Although the changes to the RSC Regulation do not come into effect until July 1, 2011, many purchasers and lenders on property have already required that properties meet the new Standards, or be remediated in order to meet the new Standards.

Footnotes

1. BOMA International, "BOMA's Guide to Writing a Commercial Real Estate Lease" (2010), online: http://shop.boma.org/showItem.aspx?product=GL2008&session=6F13DFDA73C14ADFA35F5B12A60E97C3

2. Real Property Association of Canada, "REALpac Office GREENLEASE National Standard Lease for Single-Building Projects–1.03–2010" (January 2010), online: http://www.realpac.ca/assets/Uploads/Research/Leases/Green-Office-Leases/NSGOLSingleVersion1-03cleanReleased05Feb10.pdf

3. Ibid.

4. Ibid.

5. Ibid.

6. Supra note 2.