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As new condos spring up in Toronto, rental units left behind

As new condos spring up in Toronto, rental units left behind

Over the course of a decade filled with rapid development and construction of new high-rise housing, the City of Toronto has used a powerful planning tool to preserve affordable rental apartments; the city requires that any apartments demolished through redevelopment be replaced with rental units. But a recent listing for sale of some supposedly protected apartments raises questions about how closely these agreements are monitored.

“When an application for development is approved that requires demolition of rental units, the City of Toronto secures the replacement of those units at the same unit-mix and similar rents,” said Giulio Cescato, acting director of Community Planning with Toronto’s Planning Department. When a condominium building is finished, the developer transfers all the titles for the individual condo apartments to the new owners. In some cases, the developer retains control of the replacement rental apartments or perhaps sells them to a property manager. “I think the important thing to keep in mind is that you cannot ‘sell away’ your obligations to maintain the tenure and rents of these units,” Mr. Cescato said.

An example of this arrangement is a block of 12 apartments at 68 Shuter St., a 24-storey condominium tower completed in 2017 by prominent developer CentreCourt Developments Inc. The apartments are physically inside the condo building, but were bound together in a single land title and transferred to a private company called Dalhousie Residences Inc., which was controlled by two of CentreCourt’s senior leaders: Shamez Virani, president of CentreCourt Developments, and Andrew Hoffman, the founder and CEO of CentreCourt.

In 2018, Mr. Virani and Mr. Hoffman sold the apartments to a numbered company – 2613864 Ontario Inc. – whose sole director is Nan (Grace) Zhang, a realtor and broker of record for Your VIP Group Realty Inc., in Richmond Hill, Ont. Ms. Zhang paid $4.3-million to purchase the apartments, but at the same time an entity called Rally Holdings Inc. extended a mortgage to her numbered company for $3,278,141, with 10-per-cent interest, repayable in May, 2020. There was no assignment of rent agreement, where in the event of default by the landlord the lenders would be entitled to collecting rents directly from tenants. Then, in February, 2020, those apartments were listed for sale again, this time under power of sale.

“That mortgage is currently in default, and as a result, Rally Holdings Inc. as mortgagee has initiated power of sale proceedings,” Danny Roth, a spokesperson for Rally, said. Rally Holdings has two directors: Mr. Virani and Mr. Hoffman.

“It’s just some personal issue … with my finance[s],” Ms. Zhang said. “I’m just getting the money from [an] institution and I’m going to be getting that back and there’s no power of sale. I’m going to take control [of] my property.”

The listing for the Shuter apartments asked bids to be filed by March 9, but the block does not appear to have been sold. The average apartment size is 786 square feet, and the listing says the tenanted units are pulling close to $150,000 in rent a year, while maintenance fees are pegged at $51,000. The listing also suggested there was future potential to convert them in to condo units for resale.

The Shuter apartments have a Section 111 agreement registered to the title, which are the instruments used to bind owners under the city’s Rental Housing Demolition and Conversion By-law (Chapter 667 of the Municipal Code. The owner of the Shuter apartments must keep five specific units on affordable rents – set by the Canada Mortgage and Housing Corporation (CMHC) average Toronto rental price for 10 years, and seven mid-range units that may rise to 1.5 times the CMHC guideline. They must remain in the long-term rental pool for 20 years before an owner could consider converting to condos.

“Since 2007-2018 through the by-law and official plan mechanism we have recommended approval for demolition or conversion of 3,164 units. During that period, we have secured 2,593 units to be replaced, that’s close to 90 per cent,” said Jeremy Kloet a project manager in the city planning office of strategic initiatives, policy and analysis. The policy is still new, the first replacement apartments have only started arriving in the past three years.

“As bad as our housing situation is, without this by-law the situation would have been a lot worse … half the rental buildings in the city would have been converted. I think that’s been its major impact,” Kenneth Hale, the director of legal services for the Advocacy Centre for Tenants Ontario, said.

But how closely the city monitors the agreements after the buildings are complete is less clear.

“To the best or our knowledge the agreements are being upheld and the rents are being provided at the rates that are secured in the agreement,” Sharon Hill, manager of the policy team strategic initiatives, policy and analysis section, said. “If we did note there was a section of the agreement that was not being adhered to, we would need to contact [the city’s legal office]. Of the projects that have been completed we haven’t pursued legal action.”

Ms. Zhang is obliged to keep the Shuter units for tenants, but according to tenants at least four of the 12 units were vacated following her 2018 purchase. Currently, three of the apartments are listed on the short-term rental site Airbnb by a host named Your VIP Group: two two-bedroom apartments and a single one-bedroom priced between $180 and $200 a night.

The city can at any time check on landlords bound by a Section 111 agreement, demanding a rent roll that would show both tenant and rent information. By default, rent rolls provided to the city at the time of reoccupancy and also 10 years afterward. For the most part, the city relies on tips from tenants to know if they should investigate. “Overall we’ve been fine, we may have one or two calls … and we might be pursuing followups on a couple of sites,” said Ms. Hill, who said she had received no complaints about Shuter. At least three of the original 12 Shuter St. renters exercised their right to move back in to new units in 2017.

“The monitoring of it is quite a difficult task for the city to undertake. I don’t know how much resources they put into it. I’m certainly not aware of any time the city has gone after anybody for failure to comply,” Mr. Hale said. For companies that commit to rental replacement deals, Mr. Hale said honouring them is just good business: “It’s fairly large companies [that sign these deals] they have their reputations to protect and that’s part of the enforcement.”

According to Mr. Roth’s statement on behalf of the company CentreCourt’s Mr. Virani and Mr. Hoffman control: “the company is simply the third-party lender and Rally Holdings has no involvement in the alleged actions or decisions of the property’s owner.”

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