Report on the Recommendation to Lethbridge City Council that the City’s Real Estate and Land Development Department become a Registered Brokerage
April 5, 2014
Paul Emanuelli, J.D. Jennifer Marston, J.D. Procurement Law Office *
* The Procurement Law Office provides public institutions across all sectors of government in Canada with specialized services in public sector procurement law, including institutional good governance re-‐ views and opinions. The firm ected was sel as the 2013 Canadian Public Procurement Law Firm of the Year by Global Law Experts, and received the Corporate INTL 2012 Global Award for Public Procurement Law Firm of the Year in Canada. General Counsel and Managing Director ed Paul Emanuelli was rank by Who’s Who Legal as one of the top ten public procurement lawyers in the world and his textbook Government Procurement (3rd ed., Lexis Nexis, 2013) has been cited by the courts as an authority on the subject of Canadian public sector bidding r and tende ing law. Table of Contents Part 1: Executive Summary ...... 3 1. Overview ...... 3 2. Summary of Conclusions ...... 3 Part 2: Background ...... 6 1. Background and Purpose of this Report ...... 6 2. The City and its Governance Structure ...... 6 3. Mandate of the City and the Real Estate and Land Development Department ...... 7 4. Laws and Policies Governing the Acquisition and Sale of Land...... 8 Provincial and Municipal Laws and Bylaws ...... 8 Municipal Policies and Related Approval Procedures ...... 8 Ethical Codes of Conduct and Conflict of Interest Safeguards ...... 9 5. The Regulation of Brokerages in Alberta ...... 10 6. Representation by Brokers and Brokerages...... 14 Types of Representation ...... 14 Commissions ...... 15 7. How the City Buys and Sells Land ...... 16 Acquisitions ...... 16 Sales ...... 16 Appraisals ...... 18 8. History of Sales and Acquisitions by the City ...... 18 9. Practices of Comparator Cities ...... 19 Part 3: Overview of Governance Standards ...... 20 1. Bellamy Standards for Municipal Governance ...... 21 2. Trade Treaty Governance Standards ...... 21 3. Statutory and Common Law Governance Standards...... 22 A. General Implied Fiduciary Duty to Act in the Public Interest: The Bowes Principle ...... 22 B. Common Law Oversight by Courts ...... 24 C. Enforcement of Statutory Frameworks ...... 25 Part 4: Consideration of the Proposal ...... 28 1. Brokerage Would Increase Knowledge, Standards and Oversight at the City ...... 28 Summary of Submissions ...... 28 Consideration of Submissions ...... 29 2. Brokerage Would Represent Better Value for Money in Transactions ...... 31 Summary of Submissions ...... 31 Consideration of Submissions ...... 32 3. Brokerage Would Reduce Conflicts of Interest and Promote Transparency ...... 33 Summary of Submissions ...... 33 Consideration of Submissions ...... 34
Appendix A – Public Submission to City Council, dated December 9, 2013.
Appendix B – “Brokerage would Bring Transparency”, Lethbridge Herald, February 19, 2014.
Appendix C – Spreadsheets Detailing Acquisitions and Sales by City, 2009 – 2013.
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1. OVERVIEW The City of Lethbridge has been asked to consider a proposal to transform its Real Estate and Land Development Department into a licensed brokerage set up by a registered broker (the “Proposal”). The Proposal, presented by two members of the public, raises seventeen points that fall into three main categories of concern:
• Increasing knowledge, standards and oversight at the City;
• Obtaining better value for money for the City; and
• Reducing conflicts of interest and promoting transparency.
This report has been prepared for the City to assist with the assessment and evaluation of the opportunities and challenges posed by the Proposal, against the background of the specific statutory and regulatory framework within which the City and Depart-‐ ment operate and the broader good governance standards that apply to the municipal sector in Canada, and with reference to the current practices of the Department.
2. SUMMARY OF C ONCLUSIONS The Real Estate and Land Development Department’s seven-‐member team performs a broad range of functions within its land management and land development mandate. The purchase and sale of real estate is only one specific component of its work.
The Department’s activities take place within a legal framework that includes provincial and local bylaws and policies, general municipal governance standards, treaty standards for public contracting, and statutory and common law standards for public contracting. Taxpayers and the general public have a legitimate expectation that public institutions will manage public resources and protect the public interest in accordance with high standards of diligence. These good governance standards have long been established as matter both of general public policy and formal legally enforceable duties.
The report concludes that while the values promoted by the Proposal are important and are consistent with the City’s governance obligations, there is no basis to conclude that those values are not being met by the Department in its present form, or that the pro-‐ posed transformation of the Department into a brokerage would further the promotion of those values in a meaningful way.
Knowledge, Standards, and Oversight. Although the Proposal cites concerns about the standard of work performed by the Department, no specific issues justifying concern were raised by the Proposal. The oversight function that the Proposal suggests could be carried out by the Real Estate Council of Alberta (“RECA”) is not the proper function of RECA. RECA’s mandate is to govern professionals in the real estate industry by setting
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and enforcing standards of conduct that improve the industry and protect members of the public. The Department does not act as a real estate professional representing members of the public, but as a vendor and purchaser of real estate. Having the City opt into a regulatory regime that is ancillary to its function would add unnecessary adminis-‐ trative and compliance duties and related costs. The City’s efforts would be better fo-‐ cused on continuing to ensure ongoing compliance with its existing regulatory frame-‐ work.
While the Proposal suggests that an experienced broker could be retained to open the City brokerage, the volume of transactions undertaken by the City that would require – and as importantly, exercise – the skills of an experienced broker is low. Even if an expe-‐ rienced broker were hired, it is likely that the broker’s skills would not be properly uti-‐ lized in this function and would become outdated. To the extent that the City wishes to strengthen the Department’s dge knowle of real estate matters, that goal can be met through participation in more continuing education opportunities.
Value for money. The cost savings suggested by the Proposal do not bear out under scrutiny. The City has spent an average of approximately $31,000 per year on commis-‐ sions for agents representing its interests over the five years from 2009 to 2013. This amount would not cover the cost of adding a licensed broker to staff, nor the additional costs in fees and administration that would accompany registration. Nor would the abil-‐ ity of a City broker to claim commissions on all City sales provide a financial benefit, since those commissions would come out of the sale proceeds otherwise received by the City.
Even if there were an apparent financial benefit to the arrangement, the payment of commissions is a small fraction of the cost of the overall real estate transaction. The greater value to the City is the reliance on the expertise of the broker in question dealing with the specific type of land in question. It is doubtful that the knowledge and experience of any one individual could replace the accumulated knowledge and experi-‐ ence currently available to the City within the brokerage industry when it retains the specific individuals who are most suited to the specific transaction in question. The abil-‐ ity to draw on such subject matter expertise at appropriate times better ensures that the City can obtain value for money in its real estate transactions.
Transparency. The activities of the Department are subject to internal oversight and transparency procedures. All acquisitions of land and all sales of land beyond a certain threshold are approved publicly by City Council. Sales that do not require approval by City Council are subject to approval by the Department Manager under delegated au-‐ thority from the City Manager. All sales are also independently vetted in advance by a cross-‐functional team that reviews pricing on all transactions other than residential lot sales. It is also not clear that review by RECA for compliance with the requirements of the Real Estate Act as they pertain to real estate brokers would increase this level of transparency, nor is it clear that an increased level of transparency would be appropri-‐
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ate. Conducting all aspects of land sales and purchases in public would conflict with the City’s obligation to obtain value for money. Preliminary considerations such as the level of the City’s interest in a property or the amount of money the City would be willing to spend are and should be reviewed internally before the decision proceeds to the public level.
The City should continue to strive for a balance between accountability and efficiency in its real estate transactions and should not impose additional regulatory requirements unless it can be shown that increased regulation is required to address specific systemic issues.
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Part 2 : Background
1. BACKGROUND AND P URPOSE OF R THIS EPORT On December 9, 2013, two members of the public, Jill Skriver and Brian Shockey, made a Public Submission to Lethbridge City Council requesting that the City’s real estate de-‐ partment be immediately changed to a brokerage, and that a broker be hired to set up the department (the “Proposal”). Their submissions are outlined in further detail below, and attached in full as Appendix A. Mr. Shockey also wrote a newspaper article on the same subject that was published in the Lethbridge Herald on February 19, 2013, which is attached as Appendix . B
City Council thanked Ms. Skriver and Mr. Shockey for their presentation and resolved that the City Manager would review the information provided and present City Council with an analysis outlining the opportunities and challenges of the Proposal.1
This report has been prepared for that purpose at the request of the City Manager. The facts in this report related to City procedures and policies, except where cited to specific documents, were received directly from the City and have not been independently veri-‐ fied. This report is not n i tended to serve as an audit or other investigative report, but to assess the opportunities and challenges of the Proposal based on general information about the current functioning of the Department.
2. THE C ITY AND G ITS OVERNANCE S TRUCTURE The City of Lethbridge has a population of approximately 90,000, and is governed by a City Council comprised of the Mayor and eight councillors who are elected at large. The powers and responsibilities of the City Council are set out in the Alberta Municipal Gov-‐ ernment Act (“MGA”).2 The Mayor is the chief elected official under the MGA.3
The City Manager is the chief administrative officer under the MGA4 and is a part of the Senior Management Team, which also includes the City Solicitor and the directors of the City Manager’s Office, Corporate Services, Planning and Development, Infrastructure Services, and Community Services, as well as the Human Resources Manager.
The Real Estate and Land Development Department is a City business unit that reports directly to the City Manager. The Department is comprised of seven members l-‐ when fu ly staffed, and is headed by the Real Estate and Land Development Manager. The cur-‐ rent team members include:
• Two members dedicated to development projects;
1 City of Lethbridge, Minutes of the Regular Meeting of the City Council, December 9, 2013. 2 Municipal Government , Act RSA 2000, c M-‐26 (“MGA”). 3 MGA, s. 150. 4 MGA, s. 205.
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• A marketing and economic development liaison;
• A land administrator responsible for ongoing management of land inventory and for sales transactions of industrial properties; and
• A receptionist who provides frontline services to members of the public and handles related financial transactions.
Team members have varied backgrounds specific to their functions within the Depart-‐ ment. While none are registered real estate professionals, several have planning back-‐ grounds and have taken real estate courses. Members of the Department participate in annual continuing education courses, some of which are focused on real estate where appropriate.
The Department also receives support from a cross-‐functional City team comprised of the City Manager, the Director of the City Manager’s Office, the City Solicitor, the City Treasurer and the Manager of Real Estate and Land Development Department (the “Land Cross-‐Functional Team”. The Land Cross-‐Functional Team reviews pricing on all proposed transactions other than residential lot sales and provides the first stage of vet-‐ ting for transactions that are subject to direct approval by City Council.5
3. MANDATE OF C THE ITY AND R THE EAL E STATE AND L AND D EVELOPMENT D EPARTMENT Lethbridge City Council has a broad mandate to provide good government, develop and maintain a safe and viable community, and supply desirable and/or necessary services to the community.
The two major functions of the Real Estate and Land Development Department are land management and land development. The Department’s land management function en-‐ tails acquiring, managing and disposing of the City’s real estate holdings to support cor-‐ porate and community objectives, including ensuring that properties are employed for their highest and best uses, managing land banked for future use, and administering all agreements relating to the City lands.6
The Department also engages in land development, transforming raw land owned by the City into serviced parcels. This process involves planning, marketing and selling lands for a variety of uses, including residential, industrial, institutional, recreational and commercial. The Department is currently managing four City developments: RiverStone, SunRidge, Crossings, and Sherring Business and Industrial Park.7
5 For information on approval thresholds, see “Municipal Policies”, below. 6 City of Lethbridge, 2012-‐14 Real Estate and Land Business Plan, online: http://www.lethbridge.ca/City-‐ Government/city-‐administration/Documents/2012-‐2014-‐Real%20Eastate%20Land%20Bus%20Plan.pdf (“Business Plan”), p. 1. 7 Ibid.
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Because of its civic nature, the Department has a multifaceted mandate to optimize economic and public benefits for the City and the community. Its goals, mission, values, and functions include creating industrial, residential and commercial land opportunities, developing communities that are attractive and sustainable (economically, socially and environmentally), generating revenue for reinvestment into other projects, meeting the land needs of other City departments, administering holdings to promote orderly as-‐ sembly of land for effective community planning, demonstrating leadership and innova-‐ tion in meeting land needs of institutions, recreational users, social agencies and resi-‐ dents, and protecting the natural environment.8
4. LAWS AND P OLICIES G OVERNING THE A CQUISITION AND S ALE OF L AND
Provincial and Municipal Laws and Bylaws The activities of the Real Estate and Land Development Department take place within a legal framework that includes provincial and local bylaws and policies.
At a provincial level, certain provisions of the MGA speak to the acquisition and sale of land, including, for example, section 70(1), which provides that the transfer of certain land must be advertised, and sections 652 to 660, which address the subdivision of land. Other provincial laws impacting the Department include the Freedom of Information and Protection of Privacy Act9 and the Environmental Protection and Enhancement Act.10
At a municipal level, the Department is subject to Land Use Bylaw 5700, which sets out rules and regulations for development in commercial, direct control, industrial, public service, residential, urban reserve and valley districts.11
Municipal Policies and Related Approval Procedures City Council has also approved two policies that apply respectively to the acquisition and sale of land by the City.12 Both policies are administered by City Council. Under the poli-‐ cies, City Council is the approval authority for both acquisitions and sales, but may dele-‐ gate that authority in certain situations that are set out in more detail in the policies, as follows:
Acquisitions Under the Acquisitions Policy, all acquisitions must be approved by City Council. The on-‐ ly delegated purchasing authority is the ability of the City Manager to spend up to $15,000 to enter into an option to purchase real estate on behalf of the City and subject
8 Ibid. 9 Freedom of Information and Protection of Privacy Act, RSA 2000, c F-‐25. 10 Environmental Protection and Enhancement Act, RSA 2000, c E-‐12. 11 City of Lethbridge, Land Use Bylaw 5700. 12 City of Lethbridge, Policy No. CC37, Real Estate Acquisition (October 12, 2010) (“Lethbridge Acquisition Policy”) and Policy No. CC45, Real Estate Sales (October 12, 2010) (“Lethbridge Sales Policy”).
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to City Council's approval.13 It is the responsibility of the Real Estate and Land Develop-‐ ment Manager to assess potential acquisitions for land banking and redevelopment, in-‐ dustrial and residential development, and municipal use based on the parameters set out in the 14 Policy.
Sales The Sales Policy sets out a breakdown of procedures to be followed for both residential and non-‐residential sales, specifying the responsibilities of City Council and the City Manager, or the City Manager’s designate, in both areas. The City Manager’s designate for the purposes of this Policy is the Real Estate and Land Development Manager.
For non-‐residential sales, City Council is responsible for ansactions, approval of all tr pric-‐ ing, and extensions of closing dates. However, the City Manager or designate has dele-‐ gated authority to market real estate, recommend market values to City Council for ap-‐ proval, extend closings up to 90 days without approval, and approve certain sales of listed non-‐residential properties of 5 acres or less that meet other specified conditions relating to length of closing, deposits, commissions, environmental reports and devel-‐ opment approvals.15 On a practical level, even transactions below this threshold will sometimes go before City Council for reasons other than transaction approval. For ex-‐ ample, if the City sells a surplus road right-‐of-‐way, a related road closure process will be carried out that will require City Council approval.
For residential sales, the City Manager or designate has delegated authority to market real estate, establish prices based on market conditions, grant extensions of closing dates for up to 30 days, and approve residential sales provided they include an option to purchase that meets the criteria set out in the Policy. The City Manager or designate is also responsible for determining the need of builders’ groups for subdivisions, but City Council must approve builders’ group 16 contracts.
Transactions other than residential lot sales are also reviewed by the Land Cross-‐ Functional Team, which examines pricing on proposed sales transactions and provides the first stage of vetting for transactions that are subject to direct approval by City Council.
Ethical Codes of Conduct and Conflict Safeguards of Interest The City maintains an internal Code of Ethical Conduct for its employees and follows re-‐ lated policies and procedures.
13 Lethbridge Acquisitions Policy, supra, p. 1. 14 Ibid, p. 2. 15 Lethbridge Sales Policy, supra, pp. 1-‐2. 16 Ibid, pp. 1-‐3.
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The Code of Ethical Conduct17 applies to all employees of the City, and defines pro-‐ hibits unethical conduct, including acting in conflict of interest, accepting inducements, gifts or hospitality, and using City assets for non-‐City purposes. It also requires employ-‐ ees to maintain the confidentiality of all non-‐public information whether personal, fi-‐ nancial, or technical ascertained by them in the course of their employment. Under the Code, employees are required to ensure that their own conduct and the conduct of their co-‐workers , is and is considered to be, impartial, ethical, above reproach, and in the public interest in accordance with the Code, and to disclose any circumstances that cre-‐ ate or could be considered to create a conflict of interest or otherwise contravene the code. Allegations of Code violations are documented and investigated by the appropri-‐ ate business unit manager in consultation with Human Resources, and any issues arising that are unclear or might have corporate-‐wide implications are referred to an Ethical Conduct Committee.
The City also enforces a Policy requiring that members of City Council and certain senior administrators including the City Manager, the Director of the City Manager’s Office, the City Solicitor, and the City Treasurer disclose all of their real estate holdings within a 30 kilometer radius of the City to the City Clerk immediately after each municipal election, and that that information be made available 18 to the public. The Manager of Real Estate and Land Development voluntarily discloses his personal real estate holdings to City Council in the same manner.
Individuals serving in certain capacities – including the Manager of the Real Estate and Land Development Department – are required to sign confidentiality agreements. In ad-‐ dition, the City’s auditors require that the City Manager sign off on a City Representa-‐ tion Letter for the purposes of preparing the City’s consolidated financial statements. To give the City Manager the information necessary to do this, the City circulates a cascad-‐ ing management letter to the managers of all business units. The managers who receive this letter, including the Manager of the Real Estate and Land Development Department, provide signed assurances in areas relating to adequate controls, absence of fraud and illegal acts, and related party transactions.
5. THE R EGULATION OF B ROKERAGES IN A LBERTA The Real Estate Council of Alberta (“RECA”) is a non-‐governmental agency that governs industry professionals in the real estate, mortgage broker, and real estate appraisal fields under the Real Estate Act (“REA”).19 RECA consists of twelve members, six of whom are appointed by the Alberta Real Estate Association (discussed below). It is re-‐ sponsible for establishing education standards for entry into the industry and setting licensing requirements, including for real estate brokers and brokerages. It seeks to en-‐
17 City of Lethbridge, Human Resources Policy No. HR10, Code of Ethical Conduct (June , 5 2006). 18 City of Lethbridge, Policy No. CC9, Filing of Real Estate Holdings (October 4, 2004). 19 Real Estate Act, RSA 2000, c R-‐5 (“REA”).
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force standards of conduct that improve the industry and protect consumers.20
RECA is to be distinguished from the Alberta Real Estate Associate (“AREA”), which is an association that represents the interests of Alberta’s realtors and regional real estate boards (including the Lethbridge & District Association of Realtors). AREA carries out ad-‐ vocacy and public awareness campaigns, provides practice and technology support and professional development services, and liaises with other provincial and national real estate associations.
Under the REA, persons are prohibited from trading in real estate in any of the listed capacities (including as a real estate broker or brokerage) without authorization from RECA.21 RECA is granted ated deleg authority to make rules establishing the different classes of industry members and regulating the manner in which they carry out their business activities.22 The Rules established by RECA under the REA (the “Rules”) create four classes of real estate brokers: brokerage, brokers, associate brokers, and associ-‐ ates.23
A real estate brokerage must both be licensed by RECA as a brokerage, and employ or have associated with it a licensed and registered real estate broker.24 Similarly, a real estate broker must be personally licensed, employed by or associated with a licensed real estate brokerage, and registered with and approved to operate the brokerage and trade in real estate on behalf 25 of the brokerage. In other words, broker and brokerage are interdependent. It is the broker who applies for a brokerage license, while concur-‐ rently applying to be the registered broker 26 for the brokerage.
Real estate brokerage licenses expire annually and therefore must be renewed annually by way of renewal application, to be submitted together with any fees, premiums or lev-‐ ies established by the Council.27 New license and registration fees for brokerages and brokers are currently $850 and $900 respectively, and annual renewal fees are $550 and $800.28 These fees includes the cost of Errors and Omissions insurance mandated by the Rules and provided through a specific insurance plan established and administered by RECA, called the Real Estate Insurance Exchange (or REIX).29
20 RECA website, “About RECA: RECA Overview”: http://www.reca.ca/consumers/content/about-‐reca/ reca-‐overview.htm 21 REA, supra , s. 17. 22 REA, supra , s. 12. 23 Real Estate Act Rules (“Rules”), s. 2(1). 24 Rules, supra, s. 2(2). 25 Rules, supra, s. 2(3). See also s. 6. 26 Rules, supra, s. 30(2). 27 Rules, supra, s. 5. 28 RECA Fee Schedule fective ef October 1, 2013, available http://www.reca.ca/industry/content/ online: forms/PDF/2013-‐2014/Fee%20Schedule.pdf. See also Rules, supra, Schedule 2. 29 Rules, supra, ss. 112-‐14.
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Brokerages are required to adhere to certain record 30 keeping requirements and are subject to audits by RECA, known as “Trust Assurance and Practice Reviews”, regardless of whether they operate 31a trust account. Brokerages are selected for these audits based on a number of criteria, including being in their first year of operation, though RECA’s expressed objective is to visit all brokerages on a regular basis.32 A brokerage that does not operate a trust account may still be audited for, among other things, the status of its completed and non-‐completed trade files, its policies and procedures, the general quality of its books and records, its compliance with legislative requirements, and the compliance of its bank accounts with the Rules.33
The Rules also impose various reporting requirements on brokerages. For example, they must immediately notify the executive director of RECA of various occurrences relating to change in status of registered brokers, changes in trust accounts, and changes in the directors, officers or shareholders of the corporation if the brokerage is a corporation.34
Brokerages that receive funds on behalf of clients must open and maintain at least one trust account for the deposit of funds received on behalf of clients or owners of real es-‐ tate managed under real estate management agreements, and for the purposes of de-‐ posit of any commissions. All monies received as commissions are to be paid into the trust account before being disbursed to the brokerage. This does not apply to commis-‐ sions or other remuneration that is not to be shared between brokerages or to a share of a commission or other remuneration received from another brokerage. Any amount payable to another brokerage must be paid out before the brokerage withdraws its own commission.35 RECA has confirmed that the City Department would be able to function as a brokerage without a trust account.36
The Rules assume a certain level of managerial oversight on the part of a broker towards a brokerage in several areas:
• An individual applying to be the registered broker for a brokerage that is a cor-‐ poration must be a member of the board of directors of the corporation, an of-‐ ficer of the corporation or a manager designated by the corporation.37 If the o-‐ br ker is not an owner and does not hold a controlling interest in the ownership structure of the brokerage, the requirements of this section can be satisfied
30 See e.g. Rules, supra, ss. 82-‐86, 94, 114(7). We have not reviewed these in detail, but they should be reviewed by the City and compared against the City’s own record-‐keeping requirements before the City takes steps towards hiring a broker. 31 RECA website, “Trust Assurance and Practice Review (formerly Audit and Compliance Services)”, online: http://www.reca.ca/industry/content/legislation-‐bulletins/trust-‐assurance-‐practice-‐review.htm. 32 RECA Audit Bulletin, supra , p. 2. 33 Ibid. 34 Rules, supra, s. 32. 35 Ibid, ss. 95 & 97. 36 Telephone interview with Charles Stevenson, Director, Professional Standards, RECA, March 26, 2014. 37 Ibid, s. 31(1).
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through execution of a document delegating authority for operation of the bro-‐ kerage to the broker. In such cases, owners or controlling parties may be re-‐ quired to provide a guarantee or security on behalf of the broker to ensure that the broker complies with the REA, the Rules, and relevant bylaws.38
• The responsibilities of a broker under the Rules include requirements that the broker “be actively engaged in the management” of the brokerage, ensure ade-‐ quate supervision of employees who perform duties on behalf of the brokerage, and provide personnel of the brokerage with written policies and procedures under which they are expected 39 to operate. These policies and procedures are one of the potential subjects of an audit by RECA.40
• A brokerage licence may be suspended for reasons relating to the role played by the broker within the brokerage. Most notably, a brokerage license can be sus-‐ pended where the broker “exercises little or no authority” within the broker-‐ age.41
RECA has confirmed that to the extent that these provisions require a broker within a larger corporation to play an active role in management, that management function pertains to the business of trading in real estate, not the business of the corporation as a whole.42 It is unclear how the management function of the proposed broker would work within the current structure of the department, given the heavy emphasis within the Department on development and land management. To the extent that the Pro-‐ posal contemplates that the broker would assume the functions of the current Manager of the Department, this raises potential questions about the ability of the proposed bro-‐ ker to remain current in broker-‐specific skills while carrying out those broader manage-‐ ment functions. A revised management structure for the Department may be required, with either dual managerial positions or a subordinate managerial role for the broker.
Brokers and brokerages are required to make written disclosure to individuals setting out their role and services to be provided in any anticipated trade, who they represent, any potential conflict of interest, and “any other facts that may influence the person’s decision”. That disclosure must be made “before eliciting or as soon as possible upon receiving confidential information from any person concerning that person’s real estate needs, motivation, financial qualifications”, and the broker or brokerage must make best efforts to obtain written acknowledgement from the person that those disclosures
38 Ibid, s. 31(2). 39 Ibid, ss. 51(1)(a), (e) and (f). 40 RECA bulletin, “Guide to Trust Assurance and Practice Review – For Real Estate Industry Members”, online: http://www.reca.ca/industry/content/publications-‐resources/PDF/2013-‐Guide-‐to-‐Practice%20-‐% 20Review-‐Real-‐Estate.pdf (“RECA Audit Bulletin”). 41 Rules, supra, s. 35(2)(d). 42 Telephone interview with Charles Director, Stevenson, Professional Standards, RECA, March 26, 2014.
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have been 43 made. This would create significant administrative complexities when ap-‐ plied to, for example, the unique nature of the City’s development and sale of residen-‐ tial lots to the public.
6. REPRESENTATION BY B ROKERS AND B ROKERAGES
Types of Representation Brokers or brokerages can represent parties in different capacities. The traditional form of representation is when a broker or brokerage acts only for one party – buyer or sell-‐ er. This is called “sole agency”. The agent has a duty to act in the interests of the party it represents, with related obligations of confidentiality, obedience, and full disclosure to-‐ wards that party. This appears to be the method of agency envisioned by the o Pr posal.44
A second method of representation is called “transaction brokerage”. This is a method of concurrent representation under which a broker or brokerage essentially acts as a facilitator for both buyer and seller, preferring neither over the other but assisting them both in reaching a mutually acceptable agreement. Transaction brokerage requires prior informed written consent from both parties. Under this arrangement, the broker or bro-‐ kerage is a “transaction facilitator” for both parties, rather than an “agent” for one. This arrangement might come about, for example, where a broker has separate existing agency relationships with both a buyer and a seller, and the buyer wishes to purchase the seller’s property, provided that both parties agree to enter into a “transaction bro-‐ ker agreement” (which would terminate the agency relationships that previously exist-‐ ed).45 A brokerage acting as transaction broker has disclosure obligations towards both parties, including, for example, the obligation to disclose any information or advice giv-‐ en to one party to the 46 other party. It is unclear whether transaction brokerage would be consistent with the City’s obligation to safeguard its own confidential information or third-‐party confidential business information.
Brokers or brokerages can also interact with members of the public in “customer sta-‐ tus”. In this case, the broker or brokerage is neither agent nor facilitator for the party in question, but can provide them with certain information and help them to carry out cer-‐
43 Ibid, ss. 55(1) & (3). See also s. 57(b), which requires an industry member who is in a sole agency agreement with a seller to advise any buyer interested in that property of the agency relationship at earliest reasonable opportunity, and s. 58(b), vision a parallel pro with respect to buyers’ s-‐ agents and di closure to sellers. 44 Jill Skriver and Brian Shockey, Public Submission to the City of Lethbridge (December 9, 2013), point 1. 45 Rules, supra, ss. 1(1)(a), (n.1), (gg), (gg.1), and 59. ates Note also that s. 59.1 rel to transaction r-‐ broke age, but in the context of designated agency brokerage rather than common law brokerage. Designated agency brokerage is a system under which individual industry members working for the same brokerage personally act as the or agents f the client, rather than the brokerage itself acting as agent. This allows the same brokerage to separately represent buyers and sellers in the same transaction through separate agents. This arrangement would not be applicable to the lated City, as the contemp brokerage would not represent any client other than the City. 46 Ibid, s. 59(4)(a).
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tain tasks, such as filling out forms. The broker or brokerage must act honestly, but may not provide the customer with any services that require the exercise of discretion or judgment or the giving of confidential advice, and may not advocate on the consumer’s behalf. Individuals who choose customer status are often asked to sign a “customer sta-‐ tus acknowledgement form” to provide assurances that they understand the nature of the relationship with the broker or brokerage. Brokerages must always make it clear to customers that they have the option of hiring another brokerage to represent them ra-‐ ther than agreeing to customer status.47
As noted above, when dealing directly with a member of the public, a City brokerage would be obligated in all cases to make a formal disclosure of its relationship as agent for the City and its obligations towards the City, and to have the member of public sign an acknowledgement of that disclosure.48 If the member of the public is not already represented by agent and chooses not to obtain an agent, the City could either:
1. If appropriate, act as a transaction brokerage, with the consent of both the City and the member of the public. As noted above, further analysis of this option should be conducted prior to undertaking this role.
2. Treat the member of the public as having customer status (in which case it would most likely request that he or she sign a customer status acknowledgement form).
It is not clear that these additional administrative steps would add substantive oversight to current land sales engaged in by the City. They appeared to be aimed at creating transparency vis-‐à-‐vis the role of the broker as representative of n-‐ a particular party. U der the current system, if the City engages a real estate professional, that real estate professional is already responsible for making the necessary disclosures. If the City acts as a seller or purchaser without representation, there is no representational relationship to disclose. It is the creation of the role of City broker that would bring about the need for these additional transparency requirements.
Commissions In most cases, commissions to brokers or brokerages are paid by the seller of prop-‐ erty and the commission rates are established in a listing agreement. If the buyer is also represented, the commission will normally be shared between the listing agent and the buyer’s agent.
Where there is no listing agent, a seller may or may not agree to pay a commission to a buyer’s agent. On a practical level, if a seller refuses to pay a commission to buyer’s agent, that will normally be reflected in a lower offer price, given that the buyer will have to assume responsibility for payment of the agent’s commission. It is common
47 Rules, supra, s. 60. 48 Rules, supra, s. 55(1) & (3), 57(b), and 58(b).
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practice in the municipal sector in Alberta to offer commissions to a buyer’s agents re-‐ gardless of whether a seller’s agent 49 is involved.
When the City acts as seller, it offers a standard commission of 3 percent to buyers’ agents,50 except in the case of residential lot sales, where no commissions are offered. Thus, regardless of whether the City retains an agent (or acts as agent, if it establishes a brokerage), it will continue to pay commissions to buyers’ agents.
At present, it ry is ve rare for the City to retain a listing or seller’s agent when it sells property. When the City does not retain a seller’s agent, there is no fee payable out of the sale proceeds to a seller’s agent. When the City does retain a seller’s agent, that agent is generally entitled to a commission at the agreed rate out of the proceeds sale. If the City were to establish a brokerage, the brokerage would be entitled to claim or waive the seller’s agent’s portion of the commission for all sales by the City. This would have the same net effect as if the City had not hired a seller’s agent. Using an in-‐ ternal City brokerage would therefore only provide a benefit in terms of commissions on sales in cases where the City would otherwise have retained an external seller’s agent.
7. HOW THE C ITY B UYS AND S ELLS L AND
Acquisitions The City acquires land for multiple purposes, including short-‐term and long-‐term resi-‐ dential, commercial and industrial development, municipal use for services and infra-‐ structure, and land banking. In the case of acquisitions, the City rarely purchases listed property. In most cases, the City will source property that it requires for one of its pur-‐ poses and seek out the owner to initiate discussions. In such cases, it is rare for the property owners to hire an agent, and business is normally transacted directly between the City and the property owner. The exception to this is in cases where the City choos-‐ es to approach a potential seller through an agent for the purposes of remaining anon-‐ ymous, in an effort to obtain better value for money.51 In such cases, even if the City were operating as a brokerage, it would require the services of an outside agent in order to preserve anonymity.
Sales In the case of sales of serviced lots in residential developments managed by the City, sales are by way of draw at fixed prices established by the City. The City sets lot prices by way of internal appraisal, market analysis, and consultation with other developers
49 Based on interviews conducted by the City, the following rates ities: are paid by Alberta municipal Calga-‐ ry, 3.5% of first $100,000, 1.5% of balance; Edmonton, 5% of first $100,000, 3% of next $900,000, 2% over $1 million; Medicine Hat, 5% of first $100,000, 3% of next $400,000, 1% over $500,000; Red Deer, 5% of first $100,000, 3% of next $400,000, 1% over $500,000; Regina, 5% of first $1 million, 3% of balance; Strathcona County/Sherwood Park, no set policy. 50 Lethbridge Sales Policy, p. 2. 51 This approach was last used in 2007.
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and with realtors, keeping in mind comparable prices in other Alberta municipalities. Lot draws are advertised on the City website and the Lethbridge Herald. The sales process is posted on the City website at the time that the lot draw is advertised. Members of the public are invited to register for the draw, which is carried out in public. If any spots re-‐ main unfilled following the draw, they are made available on a first-‐come, first-‐served basis, and are further advertised with signage directly on the remaining properties. At the draw, the City publically announces the number of registrations submitted, and the number disqualified due to incompleteness or multiple entries over the threshold of two per household.
Sales of non-‐residential properties are advertised on the City website, with some sup-‐ plementary advertising in newspapers and on Kijiji. For industrial properties, the City is the primary industrial developer in Lethbridge, and potential purchasers know to look the City directly. For properties that are expected to generate significant interest, the City may run a formal competition. Properties that have been sold by Call for Proposal in recent years include the following:
• 1122 th 7 Avenue South, a former Red Cross office building in the London Road Neighbourhood.
• A 66-‐acre mixed use development parcel in the Crossings in West Lethbridge.
• First Avenue, a 1.66 acre downtown lot comprising most of a block, sold for re-‐ development.
• A 3.7 acre CN-‐zoned residential commercial lot at the entrance to SunRidge de-‐ velopment.
• A 14.9 acre plot of RC-‐M-‐zoned comprehensively planned medium density resi-‐ dential lot in the SunRidge development.
We are not aware of any issues raised by the Proposal or otherwise with regard to these public proposal processes.
Given that the City rarely uses a seller’s agent, situations involving “dual representa-‐ tion”, as referred to in the Proposal, 52 do not generally arise for the City. There were no
52 The term “dual representation” was likely used in a loose sense in the Proposal, given that actual dual representation is not permitted by the REA or Rules. We will continue to use the term for sake of con-‐ venience to refer to situations where an agent acting for a seller happens to also represent a potential buyer. In such cases, the only acceptable ongoing “dual” arrangements are e-‐ “transaction brokerage”, d scribed above, or “designated agency brokerage”. Designated agency brokerage is a system under which individual industry members working for the same brokerage personally act as the agents for the client, rather than the brokerage itself acting as agent. This allows the same brokerage to separately represent buyers and sellers in the same transaction through separate agents. This i-‐ arrangement would not be appl cable to the City, as the contemplated brokerage would not represent any client other than the City.
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such instances in the five years from 2009 to 2013, as shown below under “History of Sales and Acquisitions by the City”.
Appraisals The City generally performs internal appraisals of industrial land based on other stock available in the Lethbridge area. While they look at comparative markets in Calgary, Edmonton, and Red Deer to some extent, the pricing ultimately reflects differences in the various markets. In the cial case of commer land, some appraisals are conducted in-‐ ternally. They City does obtain third-‐party appraisals for specialty properties, e.g. a re-‐ cent sale of -‐ a three acre multi family commercial site at SunRidge. The City also makes use of its own internal property assessment appraisal system, which is based on market value.
8. HISTORY OF S ALES AND A CQUISITIONS BY C THE ITY Detailed spreadsheets summarizing the City’s acquisitions and sales of real estate for the five year period from 2009 to 2013 is attached as Appendix C. The following section provides an overview of the data contained in those spreadsheets
Over the five year period preceding this report (2009 to 2013), the City has acquired twenty (20) properties at a total cost of 15,833,176.60 $ , and paid two (2) commissions, totaling $155,398.54. Only one of the twenty properties purchased was a listed property – an IGA acquired as the new Casa site – and accounted for $132,000.00 of the total commission costs. The remaining $23,398.54 was a consulting fee paid for efforts relat-‐ ed to land assembly four parcels to support the 3rd Avenue North Extension Project.
Acquisitions
2009 2010 2011 2012 2013 Total
# of Acquisitions / 8 8 0 3 2 21 Land Swaps
# of Commissions Paid 2 0 0 0 0 2 by City to Buyers’ Agents
$ of Commissions Paid 155,398.54 0 0 0 0 $155,398.54 by City to Buyers’ Agents
# of Commissions Paid 0 0 0 0 0 0 by City to Sellers’ Agents
$ of Commissions Paid 0 0 0 0 0 0 by City to Sellers’ Agents
# of Listed Properties 1 0 0 0 0 1
Total Dollars – Purchases 10,246,367.18 1,954,613.92 -‐ 125,095.50 3,508,100.00 $15,833,176.60
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Over the same -‐ five year period, the City has sold fifty (50) non-‐residential properties, for a total value of $17,264,166.86, and paid eleven (11) commissions to buyers’ agents and none to sellers’ agents. Thirty-‐one (31) of the properties sold were advertised, while the remainder were sales solicited by the purchasers, such as sales of excess road right-‐of-‐ ways to developers.
Sales (Non -‐Residential)
2009 2010 2011 2012 2013 Total
# of Sales Transactions 6 8 16 10 10 50
# of Commissions Paid by 0 2 2 2 5 11 City to Buyers’ Agents
$ of Commissions Paid by 0 8,485.00 96,525.00 60,222.75 71,107.53 $236,340.28 City to Buyers’ Agents
# of Commissions Paid by 0 0 0 0 0 0 City to Sellers’ Agents
$ of Commissions Paid by 0 0 0 0 0 0 City to Sellers’ Agents
# of Advertised Proper-‐ 1 4 8 9 9 31 ties
Total Dollars – Sales 1,452,374.00 1,628,325.20 5,617,888.50 5,366,228.16 3,199,351.00 $17,264,166.86
The City has sold 394 residential serviced lots in the RiverStone and SunRidge develop-‐ ments during the same period, for a total value of $35,542,433.00. As noted above, the City does not pay commissions on sales of single-‐family and semi-‐detached lots.
9. PRACTICES OF C OMPARATOR CITIES In considering the points raised in the Proposal, the City conducted a survey of other Alberta municipalities to determine whether they were acting as brokerages. Two cities – Calgary and Edmonton – confirmed that they are registered as brokerages and employ at least one 53 broker. Medicine Hat, Red Deer, Regina, Strathcona County/Sherwood Park and Alberta Infrastructure do not operate as brokerages. RECA has confirmed that Calgary and Edmonton are the only Alberta municipalities currently serving as brokerag-‐ es.54
The following chart outlines the results of the City’s research:
53 This information is also available via the License Search function on RECA’s website, at https://www.reca.ca/online/aspx/pubinquiry.aspx. 54 Telephone interview with Charles Stevenson, Director, Professional Standards, RECA, March 26, 2014.
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Calgary Edmonton Medicine Hat Red Deer AB Infrastruc-‐ Regina Strathcona ture County/ Sherwood Park
Bro-‐ Yes, two Yes, two No No No No No ker/Real licensed licensed o-‐ br Estate agents, only ker and listing Agent? used for agent, only dispositions used for d is-‐ positions
Typical Appraisers, Appraisers, Business Land agent Appraisers, Business Business Qualif-‐ land agents, land agents, background land agents, background background ications business right-‐of-‐way business of staff back-‐ agents background – grounds work towards designation for either
How In-‐house, In-‐house, staff In-‐house, Two apprais-‐ In-‐house, Independent propert-‐ staff trained trained as Independent als, one inter-‐ independent appraisal, ies are as apprais-‐ appraisers appraisal on nal and one appraisal on sometimes in-‐ valued ers larger acquisi-‐ external, if larger acquisi-‐ house tions really political tions then two external
Commis-‐ 3.5% up to 5% up to 5% up to 5% up to 7% up to 5% up to $ 1 Yes, no set sions $100,000 $100,000 $100,000 $100,000 100,000, 3% Mil policy as paid to balance. seldom pay buyers’ 1.5% bal-‐ 3% next 3% next 3% next Negotiate 3% over $1 agents? ance $900,000 $400,000 $400,000 down on Mil 2% over $1 1% over 1% over properties Mil $500,000 $500,000 over $1 Mil.
Part 3 : Overview of Governance Standards
Drawing from both general municipal good governance process standards and standards specific to procurement and competitive bidding, Part 3 provides a series of benchmarks relating to transparency, value for money, due process and legal defensibility against which the City’s current practices can be measured.
Taxpayers and the general public have a legitimate expectation that public institutions will manage public resources and protect the public interest in accordance with high standards of diligence. These good governance principles have long been established as matter both of general public policy and formal legally enforceable duties.
The good governance standards covered in this section that relate to the City’s purchase and sale of real estate assets and inform (i) the general standard of conduct individu-‐ als responsible for acting on behalf of the City and (ii) the procedural standards that would apply to purchase and sale of assets and flow from three sources discussed be-‐ low:
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1. The Bellamy Standards for Municipal Governance;
2. Trade Treaty Standards for Public Contracting;
3. Statutory and Common Law Standards for Public Contracting.
1. BELLAMY S TANDARDS FOR M UNICIPAL GOVERNANCE The importance of good governance in the municipal sector was subject to detailed re-‐ view and long series of recommendations published in 2005 by the Toronto Computer Leasing Inquiry/Toronto External Contract Inquiry which was presided over by the Hon-‐ ourable Madam Justice Denise E. Bellamy (“the Bellamy Commission”).55 The Bellamy Commission provided hundreds of good governance recommendations relating to the general administration of municipal institutions and more specifically to the procure-‐ ment and bidding processes of those institutions. Those recommendations included:
• Ethical rules requiring a code of conduct for elected officials and staff;56
• Bias and conflict of interest rules to avoid preferential treatment and create recusal protocols where decision makers or advisors may have a personal finan-‐ cial interest in a 57 matter;
• Gift protocols relating to the acceptance of gifts, entertainment and other bene-‐ fits;58
• Separation of Roles protocols that include a clear separation of political and ad-‐ ministrative functions to avoid political interference in contract award decisions and promote transparency and fairness in contract award processes.59
The Bellamy Standards serve as useful benchmarks against which municipalities across Canada can measure the due diligence of their contracting decisions.
2. TRADE T REATY G OVERNANCE S TANDARDS Like other municipalities in Canada, the City of Lethbridge is subject to national and re-‐ gional trade treaties that apply the norms of open public contracting for the purchase of goods, services and construction.60 These treaties establish the good governance stand-‐ ards of open competition, transparency and value for money in the award of govern-‐
55 The Hon. Madam Justice Denise E. Bellamy, Commissioner, Toronto Computer Leasing Inquiry / Toronto External Contract Inquiry Report (City of Toronto, 2005) (the “Bellamy Commission Report”). 56 Bellamy Commission Report, – Part 4 Executive Summary, Recommendations, -‐ #1 5. 57 Ibid, #31-‐33. 58 Ibid, #61-‐65. 59 Ibid, #71-‐79, 85, 129-‐32, and -‐ 213 18. 60 See e.g. Agreement on the Internal Trade (“AIT”), Trade, Investment and Labour Mobility Agreement (“TILMA”), and New the West Partnership Trade Agreement (“NWPTA”).
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ment contracts and require public institutions to balance due process in favour of com-‐ peting prospective contract awardees with considerations of value for money for the taxpayer (“Trade Treaty Standards”). The trade treaties recognize the unique nature of real estate and accordingly contain exceptions as they relate to the open bidding for the purchase and sale of real property. However, while they may not strictly apply to all government contracts, the treaties serve as useful benchmarks than can be and are of-‐ ten adopted by municipalities and other public sector institutions when they engage in open bidding for the sale of land.
3. STATUTORY AND C OMMON L AW G OVERNANCE S TANDARDS Formal legal governance standards flow out of two general streams: statutory codes and implied common law duties. While there are no overarching statutory codes governing all aspects of the purchase and sale of land by public institutions, this does not mean that these transactions occur in a legal vacuum. In fact, the federal and provincial gov-‐ ernments have enacted a series of statutory frameworks that regulate commercial transactions including real estate transactions in the municipal sector (e.g. Criminal Code, Competition Act, the MGA, etc.).
To the extent that gaps exist in statutory codes governing the purchase and sale of real estate by public institutions, the courts can exercise and have exercised residual over-‐ sight to fill that regulatory gap with common law good governance standards that have generally been consistent with and expanded on the Bellamy Standards and Trade Trea-‐ ty standards described above. In fact, in addition to enforcing a broad range of statutory codes that cover real estate transactions as a type of commercial transaction, the Cana-‐ dian courts also exercise a residual oversight role over the conduct of public bodies and have long regulated government contracting to ensure the protection of the n-‐ public i terest.
These legal authorities show that the individuals involved in commercial transactions on behalf of public entities are subject to a high standard of conduct that requires them to act impartially and without bias on behalf of the public institution. These legal authori-‐ ties also indicate that in general terms public institutions must adhere to strict due pro-‐ cess norms in the manner in which they conduct these transactions, particularly when they involve the use of competitive bidding processes. While an exhaustive analysis of the statutory and common law rules that apply to the purchase and sale of real estate by municipal governments is beyond the scope of this report, the following summary provides some examples of how a robust body of legal rules already apply to these transactions.
A. General Implied Fiduciary Duty to Act in the Public Interest: The Bowes Principle The courts have long recognized that elected officials in the municipal sector owe im-‐ plied common law fiduciary duties to act in the public interest and put that interest ahead of their personal interests when acting in their official capacities. These duties
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were recognized in the 1854 case of The City of Toronto v. Bowes,61 which dealt with a controversy over the Mayor of Toronto secretly contracting to purchase, at a discount, a large amount of city debentures which were contemplated under a future bylaw of the City Council. The Mayor then actively participated in establishing the bylaw to authorize the sale of the debentures. In its decision in Bowes, the Upper Canada Court of Chancery found that the Mayor was serving as a trustee for the City and had to account for the profit he derived from the transaction. As the Court stated in referring to the Mayor, “as a member of the Council he was agent for the city in the management of its affairs, and so a trustee for whatever interests of the city he might, in that capacity, have to deal with.”
This principle was reaffirmed by the Supreme Court of Canada in 1975 in Edmonton (City) v. Hawrelak.62 While the Supreme Court split on whether the defendant mayor in that specific case was liable for his role in a land transaction, it re-‐affirmed the general principles long recognized in Bowes. As the dissenting judgment noted, elected munici-‐ pal officials owe a fiduciary duty to a municipality:
In matters municipal, these principles are found more particularly in Bowes v. The City of Toronto, the judgments of the various Courts c-‐ being found respe tively in 4 Gr. 489; 6 Gr. 1; 11 Moo. P.C. 463, 14 E.R. 770.
For nearly one hundred and twenty-‐five years, the law has stood thus and I see no reason to dilute it as we enter the last quarter of the 20th century. In-‐ deed, there is every reason to reaffirm it even in all respects and to give r-‐ it fu ther strength.63
The dissenting judgment noted and adopted the following five principles from the trial decision:
1. A member of a Municipal Council is an agent or trustee accountable to the Municipality whose affairs he administers, ordingly and acc his duties are of a fiduciary nature.
2. No-‐one entrusted with duties of a fiduciary nature may enter into any transaction in which his personal interest is or may be in conflict with the interests of his principal.
3. It is immaterial to the application of the rule whether the principal did or did not suffer any injury by reason of the dealing of the agent.
4. It is immaterial to the application of the rule whether or not the agent trustee acted in good faith.
61 14 E.R. 770 (Ch). 62 [1976] 1 S.C.R. 387. 63 Ibid at 417.
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5. Any gain or advantage arising out of such a transaction must be consid-‐ ered as accruing to the 64 principal.
That judgment also stressed the significant public policy reasons behind such duties:
Confidence in our institutions is at a low ebb. This i-‐ statement is not very orig nal but unfortunately challengeable. is un Many factors have brought about this crisis and unconscionable conduct by public officials is only part of the story. Still, if we are to regain some of the lost ground, we have to start somewhere. To reaffirm the requirements of highest public morality in elect-‐ ed officials is a major step in that direction. To speak of civil liberties is very hollow indeed if these liberties are not founded on n-‐ the rock of absolutely u impeachable conduct on the part of those who have been entrusted with the administration of the public 65 domain.
This passage is reflective of a general theme in the relevant jurisprudence which sees the courts put a high premium on probity in the government contracting process and equate a failure to meet due diligence standards in government contracting as a funda-‐ mental breach of the public trust.
B. Common Law Oversight by Courts In addition to applying high standards of implied legal duties on municipal decision-‐ makers, the courts have also long exercised a residual oversight power over the con-‐ tracting decisions made by those individuals who act in the public interest. For example, in its August 1893 decision in Coughlan & Mayo v. Victoria (City),66 the British Columbia Supreme Court found that an alderman was in a conflict of interest because he owned an interest in a company that was involved in the City’s bidding process and cast the de-‐ ciding vote to award the contract to that company.
The Court found that the alderman was in an ongoing conflict of interest, noting that his personal interest could undermine his ability to properly discharge his public duties in the event that a contract dispute arose between the City and the successful bidder. Hav-‐ ing found that there was a conflict of interest, the Court then concluded that the tender-‐ ing process had been tainted with illegality:
Upon every principle of justice, the Council should be prohibited from in any way furthering what was thus illegally done. Not only the plaintiffs, but ratepayers at large, are deeply interested in seeing that all contracts, and es-‐ pecially for those for public works, should be entered n-‐ into on the fairest pri ciples.67
After finding that the contract award process had been unfair and illegal on account of the conflict of interest, the Court prohibited the City from carrying out the contract. The
64 Ibid at 416-‐17. 65 Ibid at 417. 66 [1893] B.C.J. No. 14, 3 B.C.R. 57 (B.C.S.C.). 67 Ibid at 68.
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Court concluded that such an order did not interfere with the City’s rights or privileges since “to do wrong is not the right or privilege of any man or body men.” As this case illustrates, even before the advent of statutory municipal conflict of interest codes, the courts already held oversight powers to regulate conflict of interests relating to elected officials in municipal contracting.
C. Enforcement of Statutory Frameworks
(i) Enforcement of Existing Statutory Codes Relating to Ethics In recent decades, provincial governments have enacted a series of statutory codes that regulate good governance in the municipal sector and complement the residual over-‐ sight function that has historically been performed by the courts. There numerous cases dealing with real estate transactions involving public bodies where the courts have en-‐ forced these statutory codes including:
• The Supreme Court of Canada decision in New Brunswick v. Wheeler,68 where the Court determined that the Mayor of Moncton should be removed from of-‐ fice on account of a conflict of interest involving a commercial transaction.
• The Alberta Court of Queen’s Bench decision in Lac La Biche (County) v. Bochka-‐ rev69 where the Court ruled that a municipal councillor contravened the MGA by participating in a council meeting that considered a matter over which he had a personal financial interest.
• The Ontario Superior Court of Justice decision in Mondoux v. Tuchenhagen70 where the Court found that an elected municipal official had breached Ontario’s Municipal Conflict of Interest Act71 by participating in a council vote to approve a bidding process for the sale of property for which he intended to bid, banned that individual from running for office in the subsequent election and ordered him to pay over $20,000 in legal costs to the complainant.
• The Ontario Superior Court of Justice decision in Ontario Realty Corp. v. P. a-‐ G briele & Sons 72 Ltd. where, n i addition to facing criminal prosecution under the Competition Act,73 the Court recognized that parties that engage in bid-‐rigging can also face civil actions and ordered the contractor to return the ill-‐gotten gains from a soil remediation contract and land sale agreement entered into through collusion with a government employee.
68 [1979] S.C.J. No. 61, [1979] 2 S.C.R. 650 (S.C.C.). 69 [2009] A.J. No. 733, 2009 ABQB 400 (Alta. Q.B.). 70 [2010] O.J. No. 5520, 2010 ONSC 6536 (Ont. S.C.J.). 71 R.S.O. 1990, c. M.50. 72 [2009] O.J. No. 286 (Ont. S.C.J.). 73 R.S.C., 1985, c. C-‐34.
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(ii) Expanding Enforcement of Due Process Rules for Government Contracting Decisions In addition to enforcing statutory codes that regulate government real estate transac-‐ tions as a category of general commercial transactions, the courts also exercise n-‐ a ge eral oversight role over the manner in which municipalities exercise their general statu-‐ tory powers and enforce related policies and procedures when entering into commercial contracts, including those relating to conflict of interest and disclosure. The cases on point illustrate a recent increase in judicial scrutiny over government contract decisions including:
• The February 2014 decision of the Federal Court in Rapiscan Systems Inc. v. Can-‐ ada (Attorney General)74 which provides a recent example of the trend towards increasing administrative law oversight of government contracting decisions that provide legal remedies where a public institution makes a contracting decision unfairly, unreasonably, arbitrarily or in bad faith or makes such a decision based on irrelevant considerations.
• The July 2011 judgment of the Ontario Superior Court of Justice in Friends of Lansdowne Inc. v. Ottawa (City),75 where the Court reviewed a direct contract award made by Ottawa City Council for the redevelopment of Lansdowne Park to ensure that the contract award decision complied with sole source protocols recognized in the trade treaties.
• The September 2012 decision of the Nova Scotia Supreme Court in North End Community Health Assn. v. Halifax (Regional Municipality),76 where the Court granted a community organization’s judicial review application and struck down the decision made by Halifax Regional Council to sell surplus school property to a land developer since that process did not follow the statutory rules that required the land to be sold at fair market value.
These examples provide just some highlights from a long list of cases where the courts have enforced strict procedural compliance with due process when it relates to the sale of land by public institutions.
(iii) Common Law and Statutory Confidentiality Duties and Obtaining Value for Money While good governance standards tend to focus on the norms of due process and to put a premium on the transparency of government contracting decisions, the courts have also recognized that public institutions need to maintain a balance between transparen-‐ cy and confidentiality to protect the interest of suppliers and protect the integrity of the contract decision-‐making process. The case law underscores the inherent complexities of maintaining this balancing act. By way of example, those cases include:
74 Federal Court of Canada, et Dock No. T-‐1856-‐10 (February 6, 2014). 75 2011 ONSC 4402, appeal dismissed 2012 ONCA 273. 76 2012 NSSC 330
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• Pharand Ski Corp. v. Alberta,77 where the Alberta Court of Queen’s Bench found the government liable for breaching the common law confidentiality duties it owed the plaintiff supplier who had provided confidential business information during a tendering process and awarded that bidder $1.3 million in damages on ac-‐ count of Alberta’s breach of those confidentiality duties.
• Jacques Whitford Environmental Ltd. v. Canada (Minister of National Defence,78 where the Federal Court of Canada – Trial Division allowed a supplier’s applica-‐ tion to withhold the contents of its proposal from a public access request after recognizing that the proposal contained financial, commercial, scientific or tech-‐ nical information that was confidential in nature, and that the disclosure of such information would cause it material financial loss and undermine its future com-‐ petitiveness.
• Aventis Pasteur Ltd. v. Canada (Attorney General),79 where the Federal Court of Canada granted the supplier’s application to maintain the confidentiality of its pricing information after finding that this information qualified as confidential and that its release would prejudice the supplier’s future competitive position.
• Coradix Technology Consulting Ltd. v. Canada (Minister of Public Works and Gov-‐ ernment Services),80 where the Federal Court of Canada found that the govern-‐ ment was under an obligation to protect the confidential business information contained in the supplier’s proposal from a public access request since the dis-‐ closure of the unique quality assurance and human resource management in-‐ formation would compromise its competitive position in future solicitations.
• Re Lengkeek Vessel Engineering Inc.,81 where the Canadian International Trade Tribunal found that the government’s improper disclosure of a supplier’s confi-‐ dential business information constituted a breach of the Agreement on Internal Trade and that the inadvertent disclosure of the complainant’s bid price under-‐ mined the complainant’s right to equal access to future competitions.
• Savik Enterprises v. Nunavut (Commissioner),82 where the Nunavut Court of Jus-‐ tice recognized the delicate balancing act between maintaining the confidentiali-‐ ty of supplier information and protecting the integrity of the bidding process up until contract award, and the need to disclose information about government contracting decisions after those decisions have been made.
77 [1991] A.J. No. 471, 5 B.L.R. (2d) 53 (Alta. Q.B.). 78 [2001] F.C.J. No. 828, 2001 FCT 556 (F.C.T.D.). 79 [2004] F.C.J. No. 1663, 2004 FC 1371 (F.C.). 80 [2006] F.C.J. No. 1310, 2006 FC 1030 (F.C.). 81 [2006] C.I.T.T. No. 127. 82 [2004] Nu.J. No. 1, 2004 NUCJ 4 (N.C.J.).
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Part 4 : Consideration of the Proposal
This section summarizes the submissions made by Ms. Skriver and Mr. Shockey in sup-‐ port of the Proposal, attached in full as Appendix A, together with related comments written by Mr. Shockey in a column published February 19, 2014, in the Lethbridge Her-‐ ald, attached as Appendix B, and considers those submissions in light of the governance standards identified in Part 3 and the City’s current practices identified in Part 2.
The Proposal to Council was made in the form of seventeen separate comments, many of which were then re-‐iterated and expanded upon in Mr. Shockey’s article. While both are included in their entirety in the appendices, the main points that they raise can be summarized as follows:
• Brokerage Would Increase Knowledge, Standards and Oversight at the City
• Brokerage Would Represent Better Value for Money for the City
• Brokerage Would Reduce Conflicts of Interest and Promote Transparency
These points are set out and responded to in turn below.
1. BROKERAGE W OULD I NCREASE K NOWLEDGE, STANDARDS AND O VERSIGHT AT C THE ITY
Summary of Submissions The Proposal refers to the level of knowledge and expertise of the City’s internal staff and suggest that the creation of a brokerage would improve standards and increase regulatory oversight over the City’s real estate transactions by bringing an individual who is licensed as a real estate broker on staff.
To underscore this concern, in the above-‐noted article, Mr. Shockey refers to the “IGA transaction” where:
The recent revelation that the city entered into an agreement with an unli-‐ censed individual and improperly paid that person $130,000 in commission to represent the city in the purchase of the IGA property e-‐ speaks to the comp tence of the city’s real estate department and their understanding of the basic principles of conducting al re estate in the Province of Alberta.
That column goes on to state that:
This transaction is an indication of how the city handles its real estate, so one has to ask what other unacceptable practices have taken place. How much money has the city lost as a result of poor negotiations, misinformation, lack of knowledge, protocol, inexperience and undisclosed conflicts of interest? When we suggested the establishment of a brokerage with a qualified broker, the administration seemed to want to focus on whether the number of trans-‐
The Procurement Law Office 28
actions done and the commissions saved by the city each year would make a brokerage worthwhile.
The Proposal suggests that “Having a licensed brokerage would ensure that those repre-‐ senting the city would have the proper qualifications, experience and authorization to do so,” and that this would enhance oversight because “Having a licensed brokerage would ensure that those representing the City would be required to act in compliance with the [REA], protecting the City and consumers both.” This would put the individual acting as broker in an internal oversight role where “He/she would then oversee i-‐ assoc ates under the broker, making sure everything was compliant to [REA].”
Furthermore, the Proposal submits that “having a licensed brokerage would ensure that those representing the City would be subject to the audits and disciplinary actions of the Real Estate Council of Alberta as well as the lawful instructions of the City Lethbridge.” In this way, “[RECA] would then oversee the brokerage, even doing free audits to help maintain compliance.” This would result in a program where “The Broker works only for the City, but ultimately answers to the REA, administered by the RECA.” According to the Proposal, “This promotes a reliable consistency of brokerages across the province.”
Consideration of Submissions The Proposal cites concern with the level of knowledge and expertise of the City’s inter-‐ nal staff and suggests that the creation of a brokerage would improve standards and in-‐ crease regulatory oversight over the City’s real estate transactions by bringing a licensed real estate broker into the Department.
However, the only specific concern raised by the Proposal relates to a single arrange-‐ ment referred to as “the IGA transaction” in which it is suggested that Lethbridge im-‐ properly paid an individual $130,000 in commission to represent the city.
The transaction in question, which took place in 2009, is included in Appendix C and dis-‐ cussed above as one of the two transactions in which the City used the services of an agent to acquire property between 2009 and 2013. In that case, a real estate s-‐ profe sional was used to assist the City in persuading a property owner to sell rather than lease a property housing an IGA store, which the City hoped to use as the site for its new Community Arts Centre, CASA. The principal of the company retained was chosen be-‐ cause of his experience and industry connections and ultimately succeeded in securing the property for the City. While he was a long-‐standing realtor and a licensed real estate professional at the time he was retained, questions were later raised about his status at the time the commission was paid. No determination was made by RECA on that issue because the individual in question withdrew from industry membership before conduct proceedings were concluded.83 It also came to light that the company through which the
83 RECA, News Release, “Robert Ackerman – Lifetime Withdrawal from ” Industry (January 23, 2014), avail-‐ able online: http://www.reca.ca/industry/content/publications-‐resources/news-‐releases/2014/14-‐01-‐23-‐ Ackerman.html.
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individual was acting at the time of the transaction was not licensed as a brokerage, and that company was ultimately fined $10,000 by RECA for trading in real estate without Authorization under s. 17 of the REA.84 Although these events were unfortunate, the City did not suffer any loss as a result of the transaction and secured the property it in-‐ tended to secure. The City has nonetheless implemented a procedure of checking the status of real estate professionals not only at the time of their retainer, but also at the time of payment.
It appears that the IGA transaction was an exceptional circumstance when it relates to the paying of commission and cannot be taken as reflective of a “typical” representative transaction from which general observations about the City’s practices can validly be made. The Proposal does not cite any other specific instances that are considered to be cause for concern. While it asks a rhetorical question as to “what other unacceptable practices have taken ” place , that question itself is not sufficient to support the changes suggested in the Proposal, in light of the other considerations discussed in this report.
The Proposal notes that having a licensed City brokerage would ensure that e-‐ those repr senting the City would have the proper qualifications, experience and authorization and that the in-‐house brokerage would make sure everything was compliant to the REA and that RECA could even provide free audits to help maintain compliance.
These recommendations appear to assume that the purchase and sale of real estate is the core component of the City Real Estate and Land Development Department function and that this function is currently performed without regulatory oversight. However, the City Real Estate and Land Development Department performs a broad range of func-‐ tions within its land management and land development mandate. Its activities take place within a legal framework that includes provincial and local bylaws policies that, as reflected in Part 3, are already enforceable by the courts.
The purchase and sale of real estate is only one specific component of the Department’s overall mandate and when those transactions require the services of a broker, the bro-‐ kers retained are themselves licensed and governed by the oversight scheme recom-‐ mended in the Proposal. To the extent that they involve brokers, those transactions are already subject to the audit review of RECA.
The scope of such audits by RECA is, in any event, limited to ensuring compliance with the broker’s licensing requirements and standards and would not include an audit to ensure overall compliance with the broader regulatory framework under which the City’s real estate transactions are governed. RECA’s mandate is to govern professionals in the real estate industry by setting and enforcing standards of conduct that improve the industry and protect members of the public. The Department does not act as a real
84 RECA, Case Summaries, March 5 – April 2, 2012, p. 2 (Howler Developments h Ltd., Let bridge), available online: http://www.reca.ca/Flash-‐Case-‐Summaries/April-‐2-‐2012/PrintFriendly.pdf.
The Procurement Law Office 30 estate professional representing members of the public, but as a vendor and purchaser of real estate.
Bringing that broker in-‐house would therefore not ensure compliance with broader reg-‐ ulatory requirements, nor would it increase the oversight over transactions where the City requires the services of a broker. It would ices simply replace the serv of an external contractor with an in-‐house employee. Furthermore, it would be unrealistic to place the burden of compliance with a broad range of regulatory requirements impacting real es-‐ tate transactions on that one individual when compliance should be viewed as an organ-‐ izational obligation that applies to the City as a whole.
2. BROKERAGE W OULD R EPRESENT B ETTER V ALUE FOR M ONEY IN T RANSACTIONS
Summary of Submissions According to the Proposal, the cost of hiring a qualified person on staff to act as a real estate broker would be covered by the costs currently paid to external brokers: in par-‐ ticular, the Proposal notes that “the payments of commission to outside brokerages for representation would be eliminated” and “a city brokerage would be entitled to receive any commissions offered to the seller’s representatives on properties it is interested in. This alone, may cover the wages of City staff.”
With respect to estimated costs, the Proposal notes that “This structures’ license would cost $825/year for the brokerage and $725 a year for the broker” and that “The brokers we contacted stated a salary expectation between $75,000 to $130,000”. It goes on to conclude that “for less than the price of the IGA transaction, we’d have our own real es-‐ tate professional for an entire year.”
The Proposal suggests that that this would provide the City with in-‐house expertise in the purchase and sale of real estate, noting that “two of the brokers we knew personally, had been in land development, industrial and commercial projects and sales, represent-‐ ing both buyers and sellers. They had been in real estate from 10-‐40 years, and under-‐ stand how it should work.” In the above-‐noted column, Mr. Shockey elaborates on these points by stating that:
I suggest that the benefits to the city should not be solely based on saving commissions but the increased competency a brokerage would bring to the city’s real estate department and the money that would be saved by dealing with the transactions where an outside real estate agent wasn’t hired. The fact the activities of the department would be subject to review by RECA, not just the administrative bureaucracy to which it belongs, would bring a level of transparency and accountability the likes of which would be unprecedented. When I say unprecedented, I mean unprecedented in the City of Lethbridge. The concept of a city brokerage has already been adopted by the City of Cal-‐ gary and the City of Edmonton. These cities have found the brokerage system has added expertise and credibility to their respective real estate t-‐ depar ments. It has also silenced critics who complained that the previous systems were rife with patronage and corruption. Administration is supposed to report
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to council at the end of March with a report on the feasibility of the city hav-‐ ing its own brokerage.
In his column, Mr. Shockey also comments that the in-‐house brokerage would have “ a broker with credentials and experience that would allow him or her to deal on a level playing field with savvy real estate practitioners and development companies who are accustomed to dealing with real world situations.”
Consideration of Submissions The City acquires land for multiple purposes, including short-‐term and long-‐term resi-‐ dential, commercial and industrial development, municipal use for services and infra-‐ structure, and land banking. In most cases, the City buys unlisted property directly from landowners. Real estate agents are rarely involved and commissions are rarely paid. Over the 5-‐year period from 2009 to 2013, sions only two commis were paid by the City on acquisitions. In both cases, the City required specialized expertise or influence and hired an outside broker to meet those specific needs. The total commissions paid over five years was approximately $155,000, or an average of $31,000 per year. This amount is not sufficient to fund a full-‐time broker position, as the Proposal suggests. The City has also retained buyers’ agents in the past for the purposes of maintaining anonymity.
In the context of sales, the City rarely retains sellers’ agents and did not pay any com-‐ missions to sellers’ agents during the 5-‐year period from 2009 85 to 2013. While an in-‐ house broker could certainly have collected commissions on those sales, the commis-‐ sions would have come out of the City’s sale proceeds and would therefore not have yielded any net benefit to the City.
While he t City does pay a commission of 3 percent to buyers’ agents on sales, those payments are consistent with industry and municipal sector practices and would not be eliminated by virtue of the City becoming a registered brokerage. In fact, it is more likely that buyers will choose to retain buyers’ agents if the City becomes a licensed broker-‐ age, given that the City’s broker will be obligated to inform them that the broker acts only for the City, advise them that they have the right to obtain an agent, and have them sign a disclosure form confirming that advice. This would therefore have the likely effect of increasing, rather than decreasing, transactional costs to the City and to the public.
It is also not clear that a City broker, however qualified and experienced at the time of hiring, would have access to a sufficient volume of complex transactions to allow the broker to remain current and to retain or develop expertise in any of the areas in which it might one day be needed by the City, given that the City has required the services of purchasers’ agent only twice in five years, and has advertised only thirty-‐one properties (or approximately six per year) for sale over the same period. It is questionable whether
85 One residential property was listed with an agent, but was not sold during the period of listing agreement. It later sold y directl through the City’s website.
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an in-‐house broker would be in a position to “deal on a level playing field with savvy real estate practitioners and development companies who are accustomed to dealing with real world situations”, as the Proposal suggests, or whether the City would be better served by retaining an external professional who has been exposed to a higher volume of sales in the specific area in which the City needs expert assistance for a specific trans-‐ action.
The Proposal appears to assume that the total amount of commissions for a broad range of different types of real estate transactions could be consolidated and paid to one indi-‐ vidual and that the services provided by a range of brokers whose expertise varies based on the type of transaction or property in question would be enhanced when provided by one individual. The fact of the matter is that real estate is a complex area and dealing with different types of real estate calls for different types of experience and knowledge depending on the type of land in question.
While the aggregation of commissions to one individual may, on the surface, appear to lend itself to obtaining value for money, the payment of commissions is a small fraction of the cost of the overall real estate transaction. The greater value to the City is the reli-‐ ance on the expertise of the broker in question in dealing with the specific type of land in question. It is doubtful that knowledge and experience of any one individual could replace the accumulated knowledge and experience currently available within the bro-‐ kerage industry to retain the specific individuals who are most suited for the specific transaction in question. The ability to be able to draw on such subject matter expertise at appropriate times better ensures that the City can obtain value for money in its real estate transactions.
3. BROKERAGE W OULD R EDUCE C ONFLICTS OF I NTEREST AND P ROMOTE T RANSPARENCY
Summary of Submissions The Proposal also suggests that an in-‐house brokerage would “eliminate conflicts of in-‐ terests that occur as a result of other dual representation” since “the brokerage would act strictly on behalf of the City of Lethbridge” and that “the fairness of the process of choosing a representative for the City would become a non issue”. It notes that “Real Estate transactions would become more transparent and subject to third party review without the loss of confidentiality. The perception of secret deals or inappropriate con-‐ duct would be less likely as a result.”
These points are elaborated upon by Mr. Shockey in his newspaper column, where he suggests that the implementation of an in-‐house brokerage at the City of Edmonton and City of Calgary has increased transparency and confidence in real estate transactions:
The fact the activities of the department would be subject to review by RECA, not just the administrative bureaucracy to which it belongs, would bring a level of transparency and accountability the likes of e-‐ which would be unprec dented. When I say unprecedented, I mean n unprecedented i the City of
The Procurement Law Office 33
Lethbridge. The concept of a city brokerage has already been adopted by the City of Calgary and the City of Edmonton.
Mr. Shockey’s column goes on to state that “these cities have found the s-‐ brokerage sy tem has added expertise and credibility to their respective real estate departments. It has also silenced critics who complained that the previous systems were rife with pat-‐ ronage and corruption.”
Consideration of Submissions Apart from the IGA transaction, neither the submissions to City Council nor Mr. Shock-‐ ey’s column elaborate on any other transactions of concern involving the City of Leth-‐ bridge, nor do they provide substantiation of the assertion that in-‐house brokerages in Edmonton and Calgary addressed prior concerns in those municipalities over patronage and corruption.
With respect to conflict of interest created by dual representations, as noted above in Part 2, this is rarely an issue for the City given that it does not normally retain listing agents. Further, external brokers are required to disclose any instance of dual represen-‐ tation, so the City is already protected from these risks since it can simply refuse any such proposed arrangement if that arrangement presents an unacceptable risk in the specific circumstances.
With respect to transparency, it is unclear how using an internal staff person would in-‐ crease the transparency of the City’s real estate transactions simply by virtue of the fact that this individual would be regulated by RECA. That regulatory scheme may include audits related to record-‐keeping requirements and compliance with the REA and the Rules, but it does not require brokers to conduct their business in public so it is unclear how this would address the stated concerns over the perception of “secret deals”.
The activities of the Department are subject to internal oversight and transparency re-‐ quirements. All acquisitions of land and all sales of land beyond a certain threshold are approved publicly by City Council. Sales that do not require approval by City Council are subject to approval by the Department Manager under delegated authority from the City Manager. All sales other than residential lot sales are also independently vetted in advance by the Land Cross-‐Functional Team. City employees are also subject to an in-‐ ternal Code of Conduct and subject to procedures to guard against conflict of interest, as noted above.
Finally, with respect to perceptions of transparency, the legal regulatory framework dis-‐ cussed above in Part 3 makes it plain that a public entity must carefully balance trans-‐ parency in public spending with the obligation to protect the confidentiality of commer-‐ cially sensitive supplier information. The responsibilities of protecting the public inter-‐ est, protecting the integrity of the contracting process, and better ensuring value for money for the taxpayer would be undermined by compromising the City’s bargaining position at sensitive times during the negotiation of a real estate transaction. That the
The Procurement Law Office 34 results of a real estate transaction should be disclosed and made publicly available ful-‐ fills the transparency obligations of a public institution. This is not the same as suggest-‐ ing that a commercial transactions should or reasonably could be conducted in a full public forum. In addition to potentially breaching confidential duties owed to parties involved in the transaction, a fully public process would undermine the City’s bargaining position and would not serve the best interest of the taxpayer.
The Procurement Law Office 35 Appendix A PUBLIC SUBMISSION
Date of City Council Meeting: December 9, 2013
Subject: Change of the City’s Real Estate Department into a Licensed Brokerage
Submitted By: Jill Skriver and Brian Shockey
Presented By: Jill Skriver and Brian Shockey
Request of I’d like to see an immediate change in our Real Estate Department to a City Council: brokerage and to hire a Broker to set up the department.
Purpose: If the City of Lethbridge were to establish its own brokerage the City would benefit as follows 1. The brokerage would act strictly on be behalf of the City of Lethbridge. 2. This structures' license would cost $825 a year for the brokerage and $725 a year for the broker. 3. The brokers we contacted stated a salary expectation between $75,000 to $130,000. 4. Two of the brokers we knew personally, had been in land development, Industrial and commercial projects and sales, representing both buyers and sellers. They had been in real estate from 10 - 40 years, and understand how it should work. 5. For less than the price of the IGA transaction, we'd have our own real estate professional for an entire year. 6. He/she would then oversee associates under the broker; making sure everything was compliant to the Real Estate Act (REA). 7. Real Estate Council of Alberta (RECA) would then oversee the brokerage, even doing free audits to help maintain compliance. 8. The Broker works only for the City, but ultimately answers to the REA, administered by the RECA. 9. Eliminate conflicts of interests that occur as a result of other dual representation. 10. The payments of commission to outside brokerages for representation would be eliminated. 11. Having a licensed brokerage would ensure that those representing the city would have the proper qualifications, experience and authorization to do so. 12. Having a licensed brokerage would ensure that those representing the City would be required to act in compliance with the Real Estate Act, protecting the City and consumes both. 13. Having a licensed brokerage would ensure that those representing the City would be subject to the audits and disciplinary actions of the Real Estate Council of Alberta as well as the lawful instructions of the City of Lethbridge. 14. This promotes a reliable consistency of brokerages across the province. 15. A city brokerage would be entitled to receive any commissions offered to seller's representatives on properties it is interested in. This alone, may cover the wages of City staff 16. Real estate transactions would become more transparent and subject to third party review without the loss of confidentiality. The perception of secret deals or inappropriate conduct would be less likely as a result. 17. The fairness of the process of choosing a representative for the City would become a non issue
Background : In reviewing how several real estate transactions were handled and our conversations with the manager of the City of Lethbridge real estate department, it became obvious that the City manager of this department did not understand some of the basic principles in real estate, outlined in the Real Estate Act. The average person dealing in real estate relies on the integrity and competency of their real estate professional. The City’s real estate department is paid by the City to oversee multimillion dollar transactions. We would expect that this department would have the competency and expertise which is far superior to the average individual. The requirements of the education and experience provided by a brokerage would meet an appropriate standard.
Contact Information: Name: Jill Skriver Organization: Address: 2505 5 Avenue South Phone Number: 403 329 1885 Email: [email protected]
Appendix B Appendix C
City of Lethbridge Real Estate Transactions, 2009 - 2013
Summary
Acquisitions 2009 2010 2011 2012 2013 Total # of Acquisitions / Land Swaps 8 8 0 2 2 20 # of Commissions Paid 2 0 0 0 0 2 $ of Commissions $ 155,398.54 0 0 0 0 $ 155,398.54 # of Listed Properties 1 0 0 0 0 1 Total Dollars Purchases 10,246,367.18 1,954,613.92 - 124,095.50 3,508,100.00 $ 15,833,176.60
Sales (Non Residential) 2009 2010 2011 2012 2013 Total # of Sales Transactions 6 8 16 10 10 50 # of Commissions Paid 0 2 2 2 5 11 $ of Commissions $ - 8,485.00 96,525.00 60,222.75 71,107.53 $ 236,340.28 # of Advertised Properties 1 4 8 9 9 31 Total Dollars Sales $ 1,452,374.00 1,628,325.20 5,617,888.50 5,366,228.16 3,199,351.00 $ 17,264,166.86
Residential Serviced Lot RiverStone 2009 2010 2011 2012 2013 Total # of Sales Transactions 15 68 23 85 21 212 # of Commissions Paid 0 0 0 0 0 0 $ of Commissions 0 0 0 0 0 0 # of Advertised Properties 0 Total Dollars Sales $ 1,789,200.00 7,088,600.00 1,953,150.00 8,719,610.00 2,531,260.00 $ 22,081,820.00
SunRidge 2009 2010 2011 2012 2013 Total # of Sales Transactions 79 28 42 25 8 182 # of Commissions Paid 0 0 0 0 0 0 $ of Commissions 0 0 0 0 0 0 # of Advertised Properties 0 Total Dollars Sales $ 5,024,600.00 2,185,400.00 3,405,987.00 2,069,112.00 775,514.00 $ 13,460,613.00
No Commissions are paid by the City for the Sales of single family and semidetached lots. Lot draws are advertised on the City website and the Lethbridge Herald. The sales process is posted on the City website at the time that the lot draw is advertised. Acquisitions Transactions
2009 Commission to Description Size (Area) Price Buyer's Agent Commission ($) Seller Listed Purpose 1 250 - 24 Street North 11,840.3 sq ft $ 47,361.21 Sutton Group $ 7,107.90 1041307 AB Ltd No 3rd Avenue North Extension to Mayor Magrath Drive Road Construction 2 411 Mayor Magrath Drive North 16,145.87 sq ft $ 33,200.00 Sutton Group $ 4,982.61 Jaymont Developers No 3rd Avenue North Extension to Mayor Magrath Drive Road Construction 3 316 - 24 Street North 12,916.69 sq ft $ 58,125.12 Sutton Group $ 8,723.34 K Diamond Investments No 3rd Avenue North Extension to Mayor Magrath Drive Road Construction 4 238 - 22 Street North 6,458.3 sq ft $ 17,222.26 Sutton Group $ 2,584.69 W R Kirk Holdings No 3rd Avenue North Extension to Mayor Magrath Drive Road Construction 5 IGA 721 - 3 Avenue South 2.0 ac $ 4,400,000.00 Howler $ 132,000.00 Harry Penner Professional Corp Yes New Casa Site (property was listed as "Lease Opportunity") 6 4015 Mayor Magrath Drive 5,712.41 sq ft $ 34,275.00 No - 77445 AB Ltd No Future construction of arterial road at 40th Avenue South 7 204 - 12 Avenue North House & lot $ 285,000.00 No - Michael & Jenilee Graham No 28th Street North Road Widening 8 2731 - 8 Avenue North House & lot $ 248,000.00 No - Murray & Cindy Charles No 28th Street North Road Widening Total $ 5,123,183.59 $ 155,398.54
2010 Commission to Description Size (Area) Price Buyer's Agent Commission ($) Seller Listed Purpose 1 portion of 1102 - 5 Ave North 2,132.59 sq ft $ 34,121.42 No - Aboriginal Housing society No Road widening 2 Portion of 301 - 5 Avenue North 76,665 sq ft $ 344,992.50 No - No Road right of way 3 515 - 30 Street West 3.78 ac $ 151,230.00 No - Southgate Commercial Lands Corp No Road right of way - Garry Drive & Métis Trail 4 SW 1/4 Sec 14, T8, R22 0.68 ac $ 15,000.00 No - Diane Wensveen & Joan Olesky No Road right of way - Chinook Trail 5 1025 - 30 Street West 26.687 ac $ 1,067,480.00 No - Melcor Developments No Road right of way - Garry Drive & Chinook Trail 6 1243-8 Avenue South 335.51 sq ft $ 7,590.00 No - David Borrows No Lane widening Portion of Blocks A & B Plan 2449 (Legacy Ridge 7 area) 0.23 ac $ 9,200.00 No - Melcor Developments No Transmission line right of way 8 201 - 12 Avenue North House & property $ 325,000.00 No - Peter & Lila Shreve No North Scenic Drive Project Total $ 1,954,613.92 -
2011 Commission to Description Size (Area) Price Buyer's Agent Commission ($) Seller Listed Purpose - - Total - -
2012 Commission to Description Size (Area) Price Buyer's Agent Commission ($) Seller Listed Purpose 1 SE 1/4 Sec 32, T8, R22 3.039 ac $ 121,560.00 No - Gemini Property No Road right of way - Garry Drive 2 36 street & 2 Avenue North 0.135 ac $ 2,535.50 No - Foder Land Corporation No Railway control facility Total $ 124,095.50 -
2013 Commission to Description Size (Area) Price Buyer's Agent Commission ($) Seller Listed Purpose 1 324 - 6A Avenue South 349.73 sq ft $ 3,200.00 No - Christopher Willett No Lane widening 2 4045 - 26 Avenue North 22.57 ac $ 3,504,900.00 No - Pratt & Whitney Canada No Future Development Total $ 3,508,100.00 - Sales Transactions (Non Residential)
2009 Commission to Approval (Council / Description Size (Area) Price Buyer's Agent Commission ($) Administration) Advertised Purpose Land Swap intersection of Temple & Métis Trail Lot City of Lethbridge & Daytona Land Corp. - part of the affordable housing project and 2, Blk 1, Plan 0512218 and NW 1/4 Sec 22-8-22 0.546 ac Purchase Daytona purchased an orphan piece of property after the realignment of Métis Trail. 1 W4M 5.0 ac Sell $ 138,074.00 No $ - Council N $16,926 Buy / $55,000 Sell 2 Portion of PUL at 3015 - 1 Ave South 4,741.5 ft² $ 33,190.00 No $ - Council N Go West Marketing to erect a billboard sign 3 Portion of road R/W adj to 2505 - 60 Ave W 1.35 ac $ 10,000.00 No $ - Council N Phil Hubbard - building a new house and to control public access through this area to allow Medican to construct 16 additional units and allowing the City to dispose of a 4 Sale of closed service road Plan 0010774 10672.2 ft² $ 99,110.00 No $ - Council N parcel that would only exist as a vacant piece of land. Lethbridge Native Women's Transition Home Society and the City entering into an agreement securing the initial investment, a maintenance fund to be establish that will be utilized to maintain the property that will be managed by both parties and any 5 820 & 830 - 7 Street North Building and parcel $ 1,070,000.00 No $ - Council N gained equity be split 50/50 between both . 6 3118 - 34 Street N 0.63 ac $ 102,000.00 No $ - Administration Y Double G Bobcat Total $ 1,452,374.00 $ -
2010 Commission to Approval (Council / Description Size (Area) Price Buyer's Agent Commission ($) Administration) Advertised Purpose Shaw Blanchard- Benchmark Ventures Ltd. To consolidate land with parcel to the east for purpose of 1 Portion of 514 - 3 Ave South 1,597.28 ft² $ 43,925.20 Royal Lapage $ 2,500.00 Council N developing a 28 stall parking lot 2 3528 - 30 Street N 1.02 ac $ 183,500.00 No $ - Council Y Iunctus Geometrics Corporation 3 3636 - 30 Street N 1.02 ac $ 202,000.00 No $ - Council Y Iunctus Geometrics Corporation Road Closure sale and land swap Legacy Ridge Melcor to facilitate development of new residential subdivision in Legacy Ridge area Portion of Blk A & B, Plan 6439 AA and Plan 2449 JK and the City to designate swapped land as Environmental Reserve. $150,22 Sell / 4 COT 021197566+1 1.22 ac $ 30,600.00 No $ - Council N $119,600 Buy Lots 163A, 163B, 164A & 164B of Block 32, Plan 5 1013667 $ 228,000.00 No $ - Council N Lethbridge Housing Authority- provide affordable housing 6 3435 - 1 Ave South 33,258 ft² $ 199,500.00 ALH Properties Ltd $ 5,985.00 Council N Advanced Roof Systems Ltd 7 1.28 ac RCM Med Density in SunRidge 3C 1.28 ac $ 640,000.00 No $ - Council Y Cedar Ridge to develop multi family units 8 3263 - 32 Avenue N 0.54 ac $ 100,800.00 No Administration Y Urbanex Enterprises Total $ 1,628,325.20 $ 8,485.00
2011 Commission to Approval (Council / Description Size (Area) Price Buyer's Agent Commission ($) Administration) Advertised Purpose 1 21 Southgate Blvd S 3.87 $ 3,100,000.00 Bankers Comm. $ 93,000.00 Council N Prime Funds Inc - to develop commercial area 2 Road closure and sale adj to 3435 - 1 Ave S 0.25 ac $ 47,916.00 No $ - Council N Advanced Roof Systems 3 Road Closure and sale portion of 25 Street West 1.364 ac $ 54,560.00 No $ - Council N Daytona Urban Development Corp to move forward with a subdivision Road Closure and sale portion of land adj 1120-1 1414438 AB Ltd to consolidate with the Dominion Fruit Building and provide access to 4 Ave S 500 ft² $ 3,750.00 No $ - Council N loading bay and garbage area Road Closure and sale portion of 1108 & 1120 - 1 5 Ave South 6,375 ft² $ 35,062.50 No $ - Council N Lethbridge Honda to control access to, the use of and maintenance of lane 6 Red Cross Building 1122 - 7 Avenue S $ 280,000.00 No $ - Council Y Portico Properties Land swap in RiverStone/Canyons subdivision 7001 7 University Drive West 16.38 ac $ 819,000.00 No $ - Council N Melcor for Canyons subdivision 8 131 Temple Blvd W $ 64,000.00 No Council N Habitat for Humanity 9 3031 Giffen Road N 1.0 ac $ 200,000.00 No Administration Y Avonlea Land Corporation 10 3266 Giffen Road N 0.57 ac $ 102,600.00 No Administration Y Axis Holdings 11 3373 - 32 Street N 0.75 ac $ 148,500.00 No Administration Y Axis Holdings 12 3222 Giffen Road N 0.55 ac $ 117,500.00 No Administration Y Axis Holdings 13 3417 - 32 Street N 0.75 ac $ 148,500.00 No Administration Y Axis Holdings 14 3115 Giffen Road N 1.22 ac $ 230,500.00 No Administration Y RBG Construction 15 3287 - 32 Street N 0.75 ac $ 148,500.00 No Administration Y Alberta Catastrophe Restoration Inc 16 3225 - 32 Avenue N 0.54 ac $ 117,500.00 Tiger Reality $ 3,525.00 Administration Crown Design & Development Total $ 5,617,888.50 $ 96,525.00 2012 Commission to Approval (Council / Description Size (Area) Price Buyer's Agent Commission ($) Administration) Advertised Purpose 1 Portion of Lane at 1507 Mayor Magrath Dr S 153.325 ft² $ 1,375.00 No $ - Council N 1352828 AB Ltd 2 Portion of Lane at 2905 - 2 Ave S 028 ac $ 7,525.00 Bankers Comm. $ 222.75 Council N Brenda & Varlee Ventures 3 The Living Home 609 Sunridge Cres W Lot and home $ 379,000.00 No $ - Council Y Josh MacNevin 4 1st Avenue Properties 1.66 ac $ 2,013,328.16 No $ - Council Y Stringam Denecky and Volution LLP- to create an office building in the downtown core 5 177 Sunridge Rd W Multi family parcel 14.19ac $ 2,000,000.00 Avison Young $ 60,000.00 Council Y Cedar Ridge 6 128 Temple Blvd W $ 60,000.00 No Council N Habitat for Humanity 7 3071 Giffen Road N 1.0 ac $ 190,000.00 No Administration Y Strangtech Holdings Ltd 8 3329 Giffen Road N 0.75 ac $ 148,500.00 No Administration Y Urbanex Holdings Inc 9 3169 Giffen Road N 1.22 ac $ 242,500.00 No Administration Y WJB Holdings Ltd 10 3721 Giffen Road N 2.0 ac $ 324,000.00 No Administration Y Parcon Construction Ltd Total $ 5,366,228.16 $ 60,222.75
2013 Commission to Approval (Council / Description Size (Area) Price Buyer's Agent Commission ($) Administration) Advertised Purpose 1 Property with home 2731-8 Ave N Lot and Home $ 188,000.00 No $ - Council Y Travis Farrell 2 132 Temple Blvd W $ 60,000.00 No Council N Habitat for Humanity 3 3506 - 32 Avenue N 1.07 ac $ 208,650.00 No Administration Y Alberta Catastrophe Restoration Inc 4 3420 - 32 Avenue N 0.83 ac $ 175,900.00 Avison Young $ 5,277.00 Administration Y Newcastle Homes Ltd 5 3572 - 32 Avenue N 1.20 ac $ 280,800.00 Avison Young $ 8,424.00 Administration Y Kent Developments Ltd 6 3573 - 30 Avenue N 1.13 ac $ 279,400.00 Avison Young $ 8,382.00 Administration Y Kent Developments Ltd 7 3538 - 32 Avenue N 1.07 ac $ 208,650.00 Bankers Comm. $ 6,259.50 Administration Y Lethbridge Mobile Shredding Inc 8 3474 - 32 Avenue N 1.07 ac $ 208,650.00 No Administration Y 1613256 AB Ltd 9 123 Sunridge Road W 3.735 ac $ 1,425,501.00 Avison Young $ 42,765.03 Council Y Royop Corporation 10 3446 - 32 Avenue N 1.07 ac $ 163,800.00 No Administration Y B2K2 Holdings Ltd Total $ 3,199,351.00 $ 71,107.53
2014 Pending Sales 1 Crossings Commercial land 66.49ac $33,853,250 No - Council Y Royop Corporation 2 Portion of Lane 118-7A Ave S 3661 ft² $ 46,680.00 No $ - Council N Brian Murray 3 Portion of Lane Closure 110-7A Ave S 3538 ft² $ 45,110.00 No $ - Council N Max Danielson 4 Portion of 617-5 St S South 4' $ 4,300.00 No $ - Council N Mark Sauer 5 Portion of 617-5 St S North 4" $ 4,300.00 No $ - Council N Donah Hunt 6 Road closure Adjacent to 3228 - 2 Avenue N .481 ac $ 69,745.00 No $ - Council N Richard Land Inc - Road Closure 7 Road Closure Adjacent to 4th Avenue & 26 St N .610 ac $ 41,175.00 No $ - Council N Richardson Oilseed 8 Road Closure and sale portion of 405-11 st S 252 ft² $ 4,500.00 No $ - Council N St Augustine's Church to facilitate renovation that include barrier free access Total $34,069,060 -