Two downtown Toronto businesses that lease prime real estate from the city’s parking agency have been operating rent-free for five years, thanks to what city staff describe as “administrative oversight.”
Both companies operate on the ground floor of a city-run multi-level parking lot that takes up nearly an entire city block in the heart of downtown Toronto on land owned by the Toronto Parking Authority (TPA) in steps from Yonge and Bloor streets.
The TPA admits that its leases with Elite Cleaners on Hayden Street and Tokyo Kitchen on Charles Street were due for renewal at the end of 2017. For reasons still unclear, they never were.
By the time staff realized what had happened, several years had passed and the city had about $600,000 in unpaid rent, according to a staff report at last week’s TPA meeting.
Commercial rents are not the primary responsibility of TPA
According to TPA board member and councilman Mike Layton, these types of commercial real estate transactions were secondary to the primary responsibilities of the parking authority.
“Our core business is car parks and on-street parking,” he said, “and there was, I believe, some confusion that resulted in these companies not getting lease renewals .”
The TPA has come under scrutiny from city politicians in recent years for questionable land deals that include bidding millions for a parcel of land near Finch Avenue West and Highway 400 in North York, and last year an attempt to sell city property near Yonge Street and Eglinton Avenue to a developer without permission.
North York’s land deal was scuttled by a city auditor’s report in 2017 which revealed the TPA’s inflated bid, a controversy that led to the later sacking of the TPA board this year.
Businesses will pay most rent arrears
Elite Cleaners, a dry cleaning service, and Tokyo Kitchen, a Japanese bistro, have since reached an agreement with the TPA to pay the bulk of the rent arrears. But those deals will cost the city tens of thousands of dollars, according to Layton.
“He’s going to lose money here,” he said. “[The city] identified the error about two years ago, but for the past two years they have been negotiating with the two retailers about what an appropriate refund would be.”
City and TPA staff say reimbursement settlements are confidential. Neither the owner of Tokyo Kitchen nor a representative of Elite Cleaners would speak on camera, but representatives for both told CBC Toronto that their offers to the city were tens of thousands of dollars less than the city had lost – and demanded that they pay.
The TPA approved the bylaws at its meeting on Friday, but it will likely be months before the city council puts its final seal on them and new leases with the two companies are finally finalized.
Leases slipped through the cracks, report says
The report presented at last Friday’s TPA meeting, written by TPA staff and the city’s Legal Services Department, suggests that the two leases slipped through the cracks as the liability of all Municipal leases were centralized under the city’s Corporate Real Estate Management (CREM) banner, a process that began in January 2018 and is still ongoing, according to the TPA.
The staff report attributes the oversight simply to “inadvertence”.
Tokyo Kitchen has leased its Charles Street property on the north side of the parking lot since 1996, and Elite Cleaners, which occupies premises on the Hayden Street side, has been a tenant there since 2007.
In 2016, the two companies were informed that they would have to leave the premises temporarily, as they were undergoing renovations. But when they returned at the end of 2017, no new lease was offered. The two companies said they had tried to get the city to negotiate new leases over the years, without success.
The city says it has been negotiating with businesses since at least 2021. According to TPA staff, once the details of arrears repayment are finalized, new leases will be negotiated.
TPA says it regrets “administrative oversight”
It was not until March 2021 that the TPA was informed by CREM staff that the two leases had slipped through the cracks. He ordered both businesses to pay for the years they operated without rent.
At that time, according to the report, Tokyo Kitchen owed more than $400,000 and Elite owed approximately $193,000. It’s unclear how much those numbers have jumped over the past year, but both companies continue to operate without a rental agreement in place.
Lease proposals that fell through the cracks would have seen Elite pay up to $60 per square foot, and Tokyo Kitchen, which has a much larger space, up to $97 per square foot.
The TPA said in a statement to CBC Toronto last week that it “acknowledges and regrets the administrative oversight that has taken place. This issue has been resolved and the TPA is reporting to the Board of Directors on the details of a settlement. proposed on the arrears due”.
According to the press release, “details of the proposed agreements are confidential”.