A long, complicated and costly legal dispute between the City of Orillia and the owners of the Metro grocery store on Front Street has come to an end.
And it appears to be good news for the municipality.
On Thursday, six months after the parties made their respective cases to the Ontario Court of Appeal, the city received the news they were hoping for.
In essence, the judge agreed with the city’s assessment that Metro’s lease term ends in 2029 - not 2039 as Metro contended. (Click here to read a story about the court battle).
In addition, the court concluded that repairing the roof of the grocery store is Metro’s obligation and, therefore, the company will have to reimburse the city about $620,000 to cover the cost of recent repairs.
And, finally, the court ruled Metro must pay $60,000, payment for the costs of the application and appeal.
In a memo to councillors Friday, staff noted there were “a number of legal matters pertaining to 70 Front St. N. which (had) to be resolved prior to redevelopment of the site.”
The city purchased the 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 as part of a plan to improve ‘viewscapes’ of the waterfront. Metro would continue to operate at its current location.
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 intended goal was to sell the entire property to a pre-qualified developer who presents what council determines is the best concept for the lands.
Currently the city is considering two plans for the property from two developers. (Click here to read a story about those proposals).
But it’s been a long road to get to this point.
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.”
It has been anything but straight-forward.
Originally, the city sought legal determination of the Metro lease term date, and through a counter application Metro sought legal clarification on the use of the “triangle lands”, accountability for replacement of the parking lot and accountability for the Metro roof repairs.
A lease term hearing took place on Dec. 5, 2019, and the Court ruled in favour of Metro on a lease term date of 2039, but ruled in favour of the city in regards to a deferral of the replacement of the parking lot, and replacement of the roof.
The city “carefully reviewed the court’s decision in collaboration with its solicitor and determined that an appeal of the lease term decision was warranted,” noted the staff report.
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, and a hearing was subsequently held on November 3, 2020.
On Thursday May 6, 2021, the city received news of the judgment, confirming the 2029 lease expiry date and ruling Metro had to reimburse the city for roof repairs and pay for court costs.
“This decision is welcome as it provides clarity for both the city and the waterfront development proponents and will provide certainty as it pertains to the upcoming property sale negotiations,” notes the staff report to councillors this week.
BACKGROUND
According to a staff report tabled in Feb. 2020, the following steps have been required.
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 was 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.
The additional work on the lease term date determination has resulted in additional expenditures of $35,500 beyond the original estimate.
