Agreements – The Top Ten List

1. Agreements –The Top Ten List Vancouver Seminar November 30, 2012 Mike Quattrocchi

2. 1. TO AGREE OR NOT AGREE • Contracts v. MOUs, Letters of Intent etc. • If the document is intended to be non-binding, then say so in the document!

3. Agreement in Principle respecting land sale and development • Contemplated further agreements • BUT also contained ‘obligations’ on part of each party • Silent as to whether intended to be binding

4. Negotiations continued • Municipality wanted to reconsider some key AIP terms • Developer sent ‘Demand Letter’ • Threatened lawsuit against municipality • Mediation eventually resolved the matter and transaction proceeded

5. Uncertainty respecting AIP’s legal effect Created uncertain legal position for the municipality Kept municipality at the negotiating table Affected municipality’s negotiating position Public pressure created by threat of law suit

6. If an MOU, Letter of Intent, Agreement in Principle or similarly titled document is intended to be non-binding, express wording to that effect should be included in the document

7. 2. COUNCIL RESOLUTION

8. COUNCIL RESOLUTION You need one.

9. Wording of resolution is Important • Has council authorized the agreement? • … or has council simply directed that the form of agreement be finalized and brought back to council for final approval?

10. Purchaser submitted signed offer to purchase land • Council resolution: “That Council direct staff to complete a conditional sales offer with the Purchaser for the business park development on Lot A” • Staff email, “Great news, council accepted your offer – let’s meet for coffee – I’ll bring the doughnuts”

11. Agreement not signed Negotiations continued Council’s desired development of site changes Hot real estate market

12. Request for legal advice: “Are we bound to sell to purchaser?” • Legal advice: “Probably not, but risk of suit and loss”

13. From doughnuts and coffee to lawsuit! • Certificate of Pending Litigation filed against title to Lot A • Sales and transfers can only proceed if subject to outcome of lawsuit • Effectively prevents sale to other party

14. Lawsuit eventually settled But municipality’s ability to sell property was affected for months, pending resolution of lawsuit Unclear council resolution, together with staff communication, created uncertain legal position

15. Clear Resolution: “Staff negotiate a purchase and sale contract with the purchaser” or: “That the Municipality enter into the purchase and sale contract with the purchaser as attached to the council report”

16. 3. NOTICE • Sale of land • Disposition of interest in land (easements, covenants, rights of way, leases, options, mortgages etc.)

17. Notice of public acquisition opportunity or of specific disposition If specific, notice includes Property, Purchaser & Price

18. Notice - Timing • Before municipality is bound, contractually to make the disposition • May be after council authorizing resolution • Before contract is signed or after signing, if contract remains ‘subject to final council approval”

19. Notice - Purpose • Bare Notice • No requirement for public input opportunity • Doherty v. Southgate (Town) (2006), Ontario Court of Appeal decision

20. “publication of notice of a proposed sale prior to a municipality entering into an agreement of purchase and sale provides an opportunity for members of the public who object to the sale to use political suasion to register their objections, “the democratic process allows for political involvement of the public in both formal and informal ways” “openness, transparency”

21. 4. The “5 Year Rule”

22. S.175(2) of Charter A municipality cannot incur a liability in an agreement having a term longer than 5 years (including rights of renewal and extension) without the approval of the electors

23. The Rule has been significantly narrowed in its application Courts interpreted “liability” based on its broad, plain meaning such as indemnities and maintenance obligations Courts rejected narrower “accounting meaning”

24. Municipal Liabilities Regulation Elector Approval only if liability is a loan guarantee or of a “capital nature”

25. Municipal Liabilities Regulation Interpretation of “liability” and “capital” to be consistent with recommendations and guidelines of Public Sector Accounting Board

26. Income Tax Cases: • Capital expenses v. operating expenses • Roof replacement (operating) • Building expansion or renovation (capital)

27. 5. ASSISTANCE Is contract for fair market value?

28. Local governments prohibited from providing assistance to a business Local governments may provide assistance to other organizations Local governments may provide assistance to business under a “partnering agreement” whereby the business provides a service on behalf of the local government

29. Court Decisions on Assistance • Deference to council decisions • Unless: • Obvious intent to provide assistance • Recklessness

30. Contracts awarded to ‘best value’ bidder/proponent, following some kind of public procurement process should make it easier to defend allegations of unlawful assistance

31. In the absence of a competitive procurement or acquisition process, prudent to have guidance as to financial merits of transaction Degree of ‘due diligence’ will depend on significance of transaction in the case the sale of a land, guidance might range from using assessed value of land to a formal appraisal

32. If council has some basis for being comfortable that the transaction is for fair market value, council should be in strong position to defend allegations of unlawful assistance

33. Degree to which council may consider community benefits remains unclear More likely to be justifiable if transaction includes promises by other party to do things council considers to have value, even if such value may be difficult to quantify (e.g. a covenant to build green)

34. 6. Section 219 Covenants Review scope of section 219:

35. Use of land Use of building on or to be erected on land

36. Land is to be built upon in accordance with covenant Land is not to be built upon except in accordance with the covenant Land is not to be built upon

37. Land is not to be subdivided Land is not to be subdivided except in accordance with covenant

38. Parcels of land designated in covenant are not to be sold or otherwise transferred separately

39. Conservation Covenants Land or a specified amenity in relation to land is to be protected, preserved conserved, maintained, enhanced, restored or kept in its natural or existing state in accordance with the covenant “amenity” includes natural, historical, heritage, cultural, scientific, architectural, environmental, wildlife or plant value relating to land

40. Provisions of a s.219 covenant that do not relate to these categories will not ‘run with the land’ They may bind the owner who signs the covenant However, they are not likely to bind a subsequent owner of the land

41. Examples of Provisions that Would not “Run with the Land” Obligation to pay money to the municipality Obligation to do work on other lands Obligation to transfer land to the municipality

42. Such obligations might be secured using a covenant “the land may not be built upon until the owner has transferred Lot A to the municipality” However, owner could choose to never build and therefore never transfer Lot A

43. 7. Procurement Contracts Tenders, RFPs and similar procurement processes may give rise to contractual obligations between the local government and each bidder or proponent in relation to the procurement process itself (“Contract A”). This contract is separate from the contract for the desired work (“Contract B”)

44. Whether Contract A arises depends on wording of owner’s procurement documents and whether they evidence an intent on the part of the owner to enter into contractual relations as part of the process itself

45. Drafting procurement documents requires careful consideration of desired process and potential contractual liability Name of process is not determinative

46. Avoid “Kitchen Sink” Drafting Common problem Sample excerpts from request for proposal:

47. “23. No contractual obligations shall arise between the District and any proponent unless the District and a proponent enter into a contract for the work. 24. Proposals shall be irrevocable and open for acceptance by the District for 60 days following the proposal submission deadline. 25. If the successful proponent refuses to execute the contract, the proponent’s bid security will be forfeited to the District.

48. 26. The District reserves the right to reject any or all proposals for any reason and to accept the proposal the District considers to be in the best interests of the District.”

49. If Contract A is not intended, then say so and make sure other clauses are consistent with that statement No need to “reserve rights” Minimize mandatory language The municipality “intends to evaluate proposals based on the following criteria” No proposal irrevocability or bid bond

50. 8. Indemnities • Key part of any contract • Appropriateness depends on circumstances • Municipal indemnity of owner under trail right of way agreement • Appropriateness depends on insurance coverage