On Monday night, city politicians approved spending almost $200,000 more in legal fees in what has become a protracted dispute between the municipality and the Metro grocery store.
The city purchased the Front Street Plaza at 70 Front St. N., home to Metro and other enterprises, in January of 2016 for $9.3 million.
The mall was purchased so the city could bulldoze a section of it to punch Coldwater Road down to the lake. Perhaps more importantly, the idea was to link that property to other city-owned land around the site, including the former Ossawippi lands, to create an almost 10-acre site to accommodate a revitalization of that “under-utilized” waterfront property.
The city’s goal is to sell the entire property to a pre-qualified developer who presents what council determines is the best concept for the lands.
To help expedite that process, council, in 2018, approved $390,000 for legal fees associated with "de-risking the property" and to deal with a “number of rights within the Metro lease that currently exist on these lands that would prevent the development of the site.”
At the time, the city’s solicitor, Robert Wood of Borden Ladner Gervais LLP, predicted the lease-term negotiations would be “straight-forward.”
That has not been the case.
In December, the two sides appeared in Superior Court to get a legal decision on several key issues.
In January, the city appealed part of that ruling and Metro then opted to pursue a counter-appeal.
That means the price tag for legal fees is mounting.
On Monday night, in a brief three-minute summary of the project, Laura Thompson, the city’s manager of real estate and commercial development, explained the need for more cash.
“The city has recently received an updated estimate based on the legal efforts to date and taking into account the complexities introduced to the legal process,” said Thompson.
“These legal matters are a necessary step to remove development barriers on the site,” said Thompson, who stressed it’s important to note the “city is not taking away Metro’s right to operate a grocery store on this site.”
She said staff believe the expenditure will pay off.
“A successful outcome of these legal matters would pave the way for a transformational redevelopment which will include new homes, businesses and jobs in the city’s core while adding year-round vibrancy to our renowned waterfront area,” said Thompson.
Council committee approved $195,000 in additional funding for the legal fees. The decision is subject to ratification at next Monday’s council meeting.
There was no discussion on the matter.
The money will be taken from the land acquisition reserve, which has a balance of negative $19.6 million.
According to a staff report tabled Monday night, the following actions have taken place since the original legal estimate was provided, all of which has had an impact on legal costs.
Expropriation of Lease Rights Process
The city’s solicitor anticipated that the expropriation of lease rights process would likely not include a Hearing of Necessity (HON) because parties must pay their own costs to participate in a HON and because the city’s waterfront redevelopment project plan was already well-known to the tenants, particularly Metro.
Metro did request a HON which was subsequently scheduled for Aug. 14, 2019.
The city’s solicitor and staff proceeded to prepare the required documents for the HON, which included a 600-page document book to support the city’s position.
On Aug. 12, 2019, Metro withdrew their request for the HON, however, they subsequently requested a Judicial Review of the expropriation process.
Since a Judicial Review is typically only held when there is an error in process, and the city followed the legislated process, this was never contemplated. The city’s solicitor sought to achieve a hearing date at the end of January 2020.
As that was not possible, the city submitted an application (request) to transfer the judicial review to Toronto, where there are more court dates scheduled for this type of hearing. That application was approved and the Judicial Review hearing has been scheduled for May 26, 2020, in Toronto.
The city’s solicitor has prepared court materials to respond to Metro’s request for Judicial Review and must represent the city through the remainder of the process, including at cross- examinations on the affidavits and the hearing itself.
In addition, staff determined that the creation of development concepts were necessary to more accurately guide the valuation process. This resulted in an unforeseen expenditure of $11,300 to the legal and consulting fee budget (which is where the appraisal fees had originally been allocated).
The above noted considerations have, and will continue to, impact legal fees as these necessary proceedings are dispositioned. It’s anticipated that the legal fees pertaining to the expropriation of lease rights process will exceed the originally estimated legal fees by approximately $100,000-$125,000.
Lease Term
The city’s solicitor originally estimated that determination of the lease term date should have been a straightforward matter which would likely be resolved through arbitration rather than litigation (a much more cost efficient process).
Metro chose instead to litigate the matter through an action, and the city therefore responded with an application (which is less costly and expensive than an action).
Metro submitted a counter-application seeking orders to have the city replace the roof and parking lot, and seeking an injunction against the city to prohibit the city from withholding Metro access to the triangle lands.
The city’s solicitor has prepared additional court materials to respond to Metro’s counter-application and the counter-application required cross-examinations on the affidavit evidence, and the counter-application ultimately more than doubled the amount of work required from both staff and the city’s solicitor to litigate the lease term issue.
The lease term hearing took place on Dec. 5, 2019, and the results of that decision were received on Dec. 20, 2019.
Within the decision, the judge ruled in favour of Metro in regards to the lease term and interpreted the lease agreement to have a term of 2039.
The judge ruled in favour of the city on Metro’s counter application resulting in a savings of approximately $660,000 (for replacement of the roof) and a deferral of approximately $400,000 (for replacement of the parking lot).
Metro’s addition of three matters which were not originally in the scope of the lease term date determination process added significant workload to this legal matter, as both the city solicitor and staff were subsequently required to prepare to address four separate issues, rather than one issue.
Following release of the decision, the city carefully reviewed the decision in collaboration with its solicitor, and determined that an appeal of the lease term decision was warranted.
An appeal of the lease term decision was filed in January 2020. Metro cross appealed as it pertains to the decision related to the roof and triangle matter.
The additional work on the lease term date determination has resulted in additional expenditures of $35,500 beyond the original estimate.
It’s currently anticipated that the city’s appeal and Metro’s cross appeal will incur further legal fees of approximately $30,000.
