SUPPORTS ITEM NO. 4
P&E COMMITTEE AGENDA
NOVEMBER 28, 1996
POLICY REPORT
Date: November 19, 1996
Dept. File No. 3232
TO: Standing Committee on Planning & Environment
FROM: Manager of the Housing Centre
Director of Land Use & Development, in consultation with
Director of Legal Services
SUBJECT: Text Amendments: 3624 Fraser Street
Royal Canadian Legion, Branch #68
CONSIDERATION
A. THAT Branch #68 of the Royal Canadian Legion be advised that
Council would consider eliminating the existing restriction
requiring 8 rental units in the development at 3624 Fraser
Street in return for a contribution of $50,000 to the City s
Affordable Housing Fund and subject to a rezoning application
to amend the CD-1 By-law to delete the requirement that 8
units be eligible for government funding and rescind condition
of enactment c(iii) requiring 8 rental units.
B. THAT Branch #68 of the Royal Canadian Legion be advised that
Council would consider eliminating the requirement that all
units in the development at 3624 Fraser Street be for seniors,
subject to a rezoning application to amend the CD-1 By-law to
delete the requirement that all units be occupied by
households, at least one member of which be 55 years of age or
older.
C. THAT, subject to Branch #68 making the necessary application
and paying the appropriate rezoning application fee to amend
By-law No.7157 in accordance with Council s decision regarding
A) and B), the Director of Legal Services be instructed to
prepare the necessary by-law for consideration at public
hearing;
AND FURTHER THAT the application be directly referred to
public hearing.
GENERAL MANAGER'S COMMENTS
The General Manager of Community Services presents the foregoing
for Council s CONSIDERATION. Council is being asked by Branch #68
of the Royal Canadian Legion, on the basis of hardship, to relieve
them of their obligations to provide 8 rental units and to
accommodate only seniors in the project.
Council must balance the fact that the Legion is a non-profit
organization that undertakes charitable works against the public
benefits foregone and the precedent that may be set for other
developers who run into financial difficulty to seek similar relief
in the future.
COUNCIL POLICY
On July, 1980, Council approved the following policy to apply to the
RT-2 and C-2 zoned areas on Fraser Street between Kingsway and 37th
Avenue, following a study of the Fraser Street area:
"The existing RT-2 and C-2 zones are appropriate for this
area. The current scale and development and types of
activities within the commercial and residential zones provide
an appropriate form of development for this part of Fraser
Street."
CD-1 By-law 7157 states the residential component of the project at 3624
Fraser Street will be:
". . . occupied by households of which at least one member is
55 years of age or older, with a minimum of 8 dwelling units
eligible for government funding as of September 2, 1993;"
The City s housing policy is to provide housing opportunities throughout
the City for all incomes, with priority being given to low and modest
income families, the disabled, downtown low-income singles, and seniors
on fixed incomes.
PURPOSE
This report presents for Council s consideration a request from Branch
#68 of the Royal Canadian Legion that they be relieved of their
obligations under the CD-1 to provide 8 rental units in their
development at 20th and Fraser and to restrict sales of the units to
seniors. The location of the site is noted on Appendix A, and the
letter from the Legion is attached as Appendix B.
BACKGROUND
Branch #68 of the Royal Canadian Legion, located at 20th and Fraser, was
established in 1931. Prior to its redevelopment, it occupied a single
storey single use building. The Legion undertakes numerous charitable
activities. These are funded from proceeds from the sale of beer in
the Legion Hall, meat raffles, and other activities. The legion raises
$26,500 annually for charity.
In the 1980s the Legion experienced declining revenues, and began
exploring redevelopment options for the site in order to maintain
viability. It entered into a partnership with Beaconcare Management
Limited to redevelop the site to generate additional revenues and build
a new legion hall.
In March 1992, the Legion applied to rezone the site from RT-2, which
allows a maximum density of 0.75 FSR, to CD-1 at an FSR of 2.1. The
project was to include 33 dwelling units for families, a daycare and a
legion hall. The Legion had applied for an allocation of social housing
units in the 1992 BCHMC proposal call. The project was to serve
core-need families in the area and the Legion would have operated the
housing, daycare, and the hall.
The project did not receive a social housing allocation. The project
was redesigned and the rezoning application revised. The new proposal
was to develop 25 units as a seniors equity co-op plus 8 rental units
that would be subsidized through BCHMC s rent supplement program, along
with the legion hall. The FSR was reduced to 1.75.
The project was approved at the Jan. 28, 1993, Public Hearing. In light
of Council s policy not to support rezonings in this part of Fraser St.,
staff support of this application was dependent upon the rental and
seniors housing proposed. The CD-1 By-law requires that one person
living in each unit be aged 55 or over and that "a minimum of 8 units be
eligible for government funding". The condition of enactment approved
at the Public Hearing required the owners to commit to "maintain a
minimum of 8 rental units for the life of the building".
In April 1993, the Legion wrote the City advising that the provincial
rent supplement program had been terminated and asking that the
requirement that 8 of the units be eligible for government funding be
eliminated. They were advised that this would not be possible without a
rezoning. They were also advised to complete the rezoning as approved
and seek a subsequent text amendment if they still wished to eliminate
the requirement that the units be eligible for subsidies.
As enactment before the 1993 municipal elections was desired, the Legion
agreed to register a temporary covenant on title prohibiting the
stratification of the building before a permanent covenant was in place
that would "ensure that a minimum of eight subsidized rental dwelling
units are maintained for the life of the building". The CD-1 By-law
#7157 was enacted on Sept. 2, 1993.
DEVELOPMENT OF THE PROJECT
Preliminary soil investigations revealed some contamination and the need
for piles. To avoid the need for a second storey of underground parking
the total number of units was reduced from 33 to 28. At the same time,
the condominium market was softening. Beaconcare advised the Legion
that it was unwilling to proceed with the partnership, and the Legion
decided to proceed with the development under the approved CD-1 on its
own, using its land, valued at $1,300,000 at the time, as equity.
The Legion originally hoped, from the sale of the 25 but now 20 equity
co-op units, not only to pay for the new legion hall but also to pay for
the 8 rental units. However, the project experienced both higher costs
and a softening market. By the time the project was completed in the
spring of 1996, the best the Legion could hope for was to sell the 20
units that were to form an equity co-op to owner occupiers and to sell
the 8 rental units to investors, with the intent of minimizing the size
of the mortgage they would have to carry for the legion hall.
THE RENTAL COVENANT
The City has for the past 2 decades required rental covenants as a
condition of some rezonings. Originally the City allowed the units
required to be rental to be sold individually to investors. However,
the City s experience was that owner-occupiers sometimes buy these
units, taking advantage of whatever discount is offered by developers
because of the rental restriction. The Law Department reviewed the
covenants and determined that they would be very difficult to enforce.
The most secure way to ensure rental is to prohibit stratification of
the whole building, however, this is not always feasible for financing
reasons. Consequently, some covenants governing rental units in
stratified projects require that they be owned in blocks. This ensures
that, even if the owner of the block of units occupies one of them, the
remainder will be rental. The smallest block that has been allowed has
been 4 strata lots.
The expectation of staff was that the Legion would address the specific
covenant that would be required for the 8 subsidized rental units while
the project was under construction. In September 1995 the Law
Department received an enquiry from the Legion s lawyer asking for
details, and the lawyer was advised that the 8 units would have to be
owned as a block and could not be separately transferred. Nothing
further was heard until the Legion attempted to register its strata plan
this spring. Land Titles, however, would not accept the plan because
the temporary covenant put in place at the time of enactment prohibited
registration of the strata plan.
To allow the sale of the 20 market strata lots to proceed, the Legion
agreed to a covenant containing the no-separate transfer restriction for
the 8 rental strata lots. The Legion, however, advised that it would
likely seek to have the no-separate transfer restriction removed,
claiming hardship and the fact that the no-separate transfer requirement
was not contained in the condition of enactment for the rezoning or in
the temporary covenant put on title at the time of rezoning.
Prior to trying to register the strata plan, the Legion had lined up 8
buyers for the 8 rental units. The total proceeds would have been
$1,021,000. In response to the City s requirement, they tried to market
the 8 units as a block but could not find a buyer at a price of
$790,000. They believe the 8 units would have to be discounted to a
price of $650,000 to $700,000 based on the rental income generated by
the units. The restriction would cost them at least $300,000, an amount
they could not support through the revenues generated by the legion hall
leaving them with an annual shortfall of $40,000. Marketing the 8
rental units in 2 blocks of 4 would satisfy City, but would still impose
a financial burden on the Legion. The Legion has already been forced to
put a $200,000 mortgage on its hall. As a result the project could be
forced into receivership and Branch #68 of the Royal Canadian Legion
might have to close. The statement of costs and revenues presented by
the Legion appear reasonable, and staff conclude that the project is
experiencing real difficulty.
ISSUES
The Legion s request to be able to sell the rental units to individual
investors raises several issues. One is the precedent that would be
set, another is the ability to enforce a rental covenant in the absence
of the no-separate transfer restriction, and a third is the integrity of
the rezoning.
Precedent: Council should be concerned with the precedent that would be
set by rescinding a fundamental public purpose of rezoning because
developers find themselves in financial difficulty once their projects
are completed. The City often negotiates with developers to secure
public benefits or amenities as part of the rezoning process. The
negotiations are undertaken by both parties voluntarily. It would be
inappropriate for a practice to be initiated whereby developers could
request a reduction in or the elimination of the public amenity or
benefit achieved through rezoning because market conditions or costs
change.
The City is not in the business of guaranteeing that developers make a
profit. If the rezoning is approved on the basis of the provision of a
public amenity, it should be provided regardless of the profit achieved.
Developers do not voluntarily offer an increase in or additional public
amenities or benefits when they achieve greater profits than originally
projected.
In the case of the Legion, it could be argued that, since the
no-separate transfer was not an explicit requirement of the rezoning, no
precedent is being set. The conditions of enactment for recent
rezonings requiring that rental housing be provided state that the units
must be owned as a block. As well, as a non-profit developer, it could
be argued that the Legion can be granted special dispensation without
setting a precedent for market developers.
Enforcing the Rental Restriction: Enforcing the rental only requirement
in the absence of a no-separate transfer covenant would be very
difficult. An owner-occupier could set up a company to own the unit
which they would then rent, or a relative could be the owner on title
while the occupier held an unregistered side agreement that would give
them effective ownership. As long as the tenancy agreement set the rent
at market levels, the requirement for an arms length tenancy would be
satisfied. In any event, enforcement would be expensive, time consuming
and without any guarantee of success. In short, enforcement would
likely not be pursued.
The Law Department reviewed the alternatives to the no-separate transfer
covenant. Any enforceable alternatives would be equally or more onerous
than the no-separate transfer restriction. One alternative, for
instance, would be for the City to have an option to acquire a rental
unit at a substantial discount from the market value if the unit ceases
to be rental. A purchaser of a unit with this restriction would have
difficulty getting financing, however, and the developer would have
difficulty marketing the units.
It is worth noting that the sale price for the rental units is the same
as for comparable units in the building without the rental restrictions.
As the rental value should be less than the owner-occupier value, a
discount should be expected. This indicates the ineffective nature of
the rental covenant in the absence of the no-separate transfer
restriction.
Staff do not support imposing legal covenants that cannot be enforced.
They represent expectations that cannot be satisfied, and are open to
abuse. Consequently, staff would not recommend simply allowing the
rental units to be sold to individual investors as originally requested
by Branch #68.
Rezoning Process: The rezoning of Legion s site was supported by staff
in large part because of the rental and seniors housing proposed. Staff
would not have supported the rezoning, because of the rezoning
moratorium in this part of Fraser St., without the rental and seniors
components. The Legion s original request that the rental units be
sold individually would have eliminated any affordability gain beyond
the increase in supply. On the other hand, the units are modestly
priced, and this is an area lacking in apartments so the increase in
supply is of some public benefit. As there was no opposition to the
rezoning at the public hearing, the rezoning may have been approved with
or without the rental and seniors requirements.
During the discussions with Branch #68 over the 8 rental units, the
Branch advised that they had sold units to buyers who were under the age
of 55, in contravention of the CD-1, because of limited demand from
seniors. They first tried to market the units to legion members with no
response, and then to seniors at large, still with no response. They
have sold 13 of the units, primarily to first time purchasers, and 15,
including the 8 rental units, remain unsold.
It became clear that the appropriate way for the City to give relief for
Branch s financial problems, should Council choose to give relief, was
to amend the CD-1 for the site to eliminate both the rental and age
restrictions. Branch #68 agrees that amending the text of the CD-1 is
the appropriate response. To compensate the City for the loss of the
public benefit that was to be achieved through the rezoning, the Branch
is prepared to make a contribution of $50,000 to the City s Affordable
Housing Fund a condition of the text amendments. As well, they are
prepared to pay the appropriate fee for applications to amend CD-1
texts. Amending the text of the CD-1 to provide the relief Branch #68
seeks is presented for Council s consideration. If Council is prepared
to consider eliminating the rental or the age restrictions or both, the
rezoning should be referred directly to public hearing to avoid any - 2 -
unnecessary delay, once Branch #68 makes application to amend the CD-1
and pays the application fee.
The 8 units set aside for rental have been rented, and the units may be
bought by investors rather than owner occupiers. Six of the 8 rental
units in the Legion s project are on the floor immediately over the
legion hall and they are as likely to be rented as not.
CONCLUSION
Branch #68 have asked that the rental and age restrictions contained in
the approved CD-1 be eliminated. Their request is presented for
Council s consideration. Council has the choice of eliminating the
rental or age restrictions or both if Council is willing to consider
relief. If the City does not agree to their request Branch #68 may have
to close. The legion is active in raising funds for charities and might
no longer be able to continue with this activity.
The Legion did take on the role of developer, and is experiencing the
consequences of the risks developers must take. Council could provide
the relief requested without setting a precedent for market developers
because the Legion is a non-profit operation, but the requirement that 8
of the 28 units be rental would cease to be effectively enforceable, and
the public benefit that justified the rezoning would be effectively
foregone. Staff would recommend against providing similar relief for a
market developer. Branch #68 is offering to contribute $50,000 to the
City s Affordable Housing Fund as partial compensation.
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