BMR GP Inc. – s. 74(1)

Headnote

Trades by applicant or licensed real estate agents in condohotel units included in a rental program are not subject to section 25 or 53 of the Securities Act (Ontario) provided that purchasers receive certain disclosure prior to entering into an agreement of purchase and sale.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1).

Condominium Act, S.O. 1998, c. 19, as am.

Real Estate and Business Brokers Act, 2002, S.O. 2002, c. 30, Sch. C., as am.

Ontario Securities Commission Rule 14-501 Definitions.

July 3, 2024

IN THE MATTER OF THE SECURITIES ACT R.S.O. 1990, CHAPTER S.5, AS AMENDED (the Act) AND IN THE MATTER OF BMR GP INC.

ORDER (Subsection 74(1))

Background

WHEREAS BMR GP Inc. (the Applicant) has filed an application with the Ontario Securities Commission (the Commission) for an order pursuant to subsection 74(1) of the Act that the sale by the Applicant, agents of the Applicant (the Applicant Agents) licensed under the Real Estate and Business Brokers Act, S.O. 2002, Chapter R.4, as amended (the REBB Act), Project Entities (as defined in paragraph 2 below), and Project Entity Agents (as defined in paragraph 25 below) of condominium units (the Condohotel Units) within certain condohotels (the Condohotels) to be built by the Applicant or the Project Entities (as defined in paragraph 2 below) on land known as the "Village Core" (the Village Core Lands) located next to Blue Mountain Ski Resort (the Resort) in The Town of Blue Mountains, Ontario is exempt from sections 25 and 53 of the Act;

AND WHEREAS the Applicant has requested that the application and this order (together, the Confidential Material) be kept confidential and not be made public until the earliest of: (i) the date on which the Applicant and/ or the Applicant Agents begin to market the sale of the Condohotel Units; (ii) the date on which the Applicant advises that there is no longer any need for the Confidential Material to remain confidential; or (iii) the date that is 90 days after the date of a decision of the Commission (the Confidentiality Relief)

AND UPON considering the application and the recommendation of the staff of the Commission;

AND UPON the Applicant having represented to the Commission as follows:

Representations

1. The Applicant is a subsidiary of Freed Corp., a leading developer and operator of resorts in Ontario. The Applicant is the general partner of BMR Limited Partnership, the beneficial owner of the Village Core Lands.

2. The Applicant is developing part of the Village Core Lands by constructing, in phases, either directly or through project limited partnerships or special project entities (collectively, the Project Entities or, individually, a Project Entity), dwelling units to be constructed as apartment style condominium units which will function as Condohotels or full-time residential units, as permitted by the zoning by-law referred to in paragraph 12 below (each phase, a Village Core Project). Limited portions of the developments may be freehold (and therefore excluded from condominium registration) in order to provide flexibility of access and use of non-residential areas such as parking or ancillary retail spaces. The retail spaces may be constructed as either a part of the Condohotel, their own separate condominium or freehold. The Applicant's Condohotel Units will further support and enhance the Resort's village environment that will be attractive to both frequent and infrequent users of the Resort's facilities.

3. The Project Entities will be used to develop the Village Core Lands in phases and each phase may contain one or more Condohotels. The Applicant or affiliates of the Applicant will supervise the development, construction and marketing of each Project Entity's Condohotel, and will also provide administrative services to each Project Entity. The Applicant and/or Project Entity may elect directly or through an affiliate to retain some of the Condohotel Units in order to participate in the Rental Program described in paragraph 14 below.

4. A Condohotel is a condominium complex which consists of a number of self-contained Condohotel Units and common areas and common facilities that are available for use by the owners and other occupants of Condohotel Units.

5. It is expected that each Condohotel Unit will have a living area, a kitchen and at least one bathroom and a sleeping area/bedroom, and will be sold with the option of being fully furnished.

6. The common areas and common facilities of a Condohotel will generally consist of central interior hallways and may also include one or more of underground parking, a lounge area, a pool and spa facility and additional space that may be required to support the rental management operation of the Condohotel as more particularly described in paragraph 14 below.

7. In addition to his or her own Condohotel Unit, each owner of a Condohotel Unit will be entitled to a proportionate share of the relevant Condohotel's common property and the common facilities and other assets of the condominium corporation (the Condohotel Corporation) that will be created pursuant to the Condominium Act, 1998 S.O. 1998, Chapter 19, as amended (the Condominium Act).

8. Each owner of a Condohotel Unit will be responsible for expenses, such as heat, light, power, cable television (which may be offered by the property manager), telephone line charges and real property taxes, that are directly attributable to the Condohotel Unit, and will also be responsible for his or her proportionate share of certain utilities and other expenses related to the common property of the Condohotel.

9. Common expenses and repair reserve funds in respect of the common areas will be determined by the Condohotel Corporation and will be payable by each owner of a Condohotel Unit.

10. The Applicant or Project Entity, as the case may be, will cause the Condohotel Corporation to enter into a property management agreement with a qualified property manager, which shall be a qualified third party or an affiliate of the Applicant, and the property manager shall manage and administer the Condohotel's common property and shall be paid a management fee for its services. It is expected that any property management agreement will be on market terms and be subject to termination provisions typical for agreements with condominium corporations. Depending on the ownership structure, a separate property manager may be retained to manage the retail spaces and will be paid a management fee for its services.

11. An independent third party not related to the Applicant owns and operates the Resort.

12. The Village Core Project is subject to a comprehensive scheme of land use regulation pursuant to a zoning by-law (the By-Law), which establishes certain criteria that must be met by multi-unit developments, such as a Condohotel, that are to be established on the Village Core Lands.

13. For purposes of the By-Law, a Condohotel will be structured and operated as a "Village Commercial Resort Unit" which is defined by the By-Law to mean one room or a group of rooms forming a single commercial accommodation unit within a Village Commercial Resort Unit Complex in which:

(a) culinary and sanitary facilities are provided for the exclusive use of the unit; and

(b) access to the unit is provided by a private entrance from a common hallway inside the building; and

(c) is not used or designated as a principal residence, but

does not mean or include a residential dwelling unit, hotel unit, a motel unit, an inn unit, a lodge unit, a dormitory unit, a hostel unit, or any other use defined in the By-Law.

The term "Village Commercial Resort Unit Complex" -- is defined as a building or group of buildings containing 10 or more Village Commercial Resort Units which:

(i) is serviced by a central lobby facility; and

(ii) is part of a rental or lease management program, including housekeeping services, with a minimum of 80% of the Village Commercial Resort Units restricted to occupancy by any one individual person for one or more periods of time not to cumulatively exceed a total of 120 days per year; and

(iii) the remaining 20% may be exempt from the 120 day per year occupancy limitation; and

(iv) contain accessory recreational and/or commercial uses; and

(v) the maximum number of Village Commercial Resort Units that may be exempted under subsection (iii) above shall be 256.

14. In order to comply with the By-Law, every owner of a Condohotel Unit that comprises the 80% of units with restricted occupancy will be required to enter into either a rental management agreement (the Rental Management Agreement) or rental pooling management agreement (the Rental Pooling Management Agreement) with either the Applicant, an affiliate of the Applicant or a qualified third party, in order to (i) permit the establishment and operation of a Condohotel rental or lease arrangement program (the Rental Program) either by way of a rental management arrangement or a rental pooling arrangement; and (ii) ensure that the terms of any ruling and order granted by the Commission are complied with. If the Rental Program is designed as a rental management arrangement, each owner of a Condohotel Unit will be required to enter into a Rental Management Agreement with either the Applicant, an affiliate of the Applicant or a qualified third party, as the case may be (the Unit Manager). If the Rental Program is designed as a rental pooling arrangement, each owner of a Condohotel Unit will be required to enter into a Rental Pooling Management Agreement with either the Applicant, an affiliate of the Applicant or a qualified third party, as the case may be (the Rental Pool Manager). The Unit Manager or the Rental Pool Manager, as applicable, will be the exclusive agent for the rental of each owner's Condohotel Unit. In accordance with the By-Law, up to 20% of such owners may be permitted, to opt out of participation in the Rental Program so long as at least 80% of owners of Condohotel Units continue to participate in the Rental Program (Rental Program Participants). Owners of Condohotel Units who have opted out of the Rental Program may subsequently become Rental Program Participants by opting into the Rental Program in accordance with the terms thereof.

15. A Rental Management Agreement would require the Unit Manager so retained by a Rental Program Participant to generate revenue for the Rental Program Participant by renting the Rental Program Participant's Condohotel Unit to third parties and generally maintaining the Condohotel Unit for such purpose.

16. A Rental Pooling Management Agreement would require a Rental Program Participant to participate in an arrangement whereby revenues derived from, and/or expenses relating to, the rental of the Rental Program Participant's Condohotel Unit by the Rental Pool Manager would be pooled with revenues derived from, and/or expenses relating to, the rental of all other Condohotel Units located in the same Condohotel that are owned by Rental Program Participants and all such pooled revenues and expenses would be shared by such Rental Program Participants in accordance with their proportionate interests in the Condohotel (a Rental Pool).

17. The Unit Manager or Rental Pool Manager, as the case may be, will (i) determine the rental rates for the Condohotel Units; (ii) coordinate the rental of Condohotel Units; (iii) collect all rental payments and charges; (iv) deposit the rent revenues and pooling revenues of the Rental Program into operating accounts under the exclusive control of the Unit Manager or Rental Pool Manager pursuant to the terms of the Rental Management Agreement or Rental Pooling Management Agreement, as the case may be; and (v) operate, supervise, manage, clean and maintain the Condohotel Units.

18. Maintenance fees and repair costs for each Condohotel Unit which participates in the Rental Program, including charges for annual deep cleaning, furniture and appliance repair and normal "wear-and-tear", will be payable by the owner of the Condohotel Unit. In the event that a Condohotel Unit is damaged by a guest who rents such Condohotel Unit, the owner will be ultimately responsible for the repair costs relating to such damage (to the extent such cost cannot be recovered from the guest), but the Unit Manager or Rental Pool Manager, as the case may be, and the owner will co-operate in recovering such costs from any guest which may have caused such damage.

19. Individual expenses incurred in connection with an owner's personal use of his/her Condohotel Unit, including items such as room service charges and telephone bills, shall be paid after each period of personal use by the owner. The Unit Manager or Rental Pool Manager, as the case may be, may deduct any unpaid individual expenses incurred by an owner from that owner's aggregate revenue distribution. Each owner of a Condohotel Unit will be responsible to the Unit Manager or Rental Pool Manager, as the case may be, for any shortfall between the owner's aggregate revenue distribution and any of the costs associated with such owner's Condohotel Unit. In the event that the Unit Manager or Rental Pool Manager, as the case may be, elects to deduct any unpaid individual expenses incurred by an owner from that owner's aggregate revenue distribution, a penalty charge may also be applied by the Unit Manager or Rental Pool Manager. The owner of a Condohotel Unit will not be responsible for personal use charges incurred by guests of the Unit Manager or Rental Pool Manager, as the case may be.

20. The Unit Manager or Rental Pool Manager, as the case may be, will be responsible for all operating costs of the Condohotel other than certain fees, charges and expenses listed in the Rental Management Agreement or Rental Pooling Management Agreement, as applicable (the Fees, Charges and Expenses) that are to be paid by the owners of the Condohotel Units in connection with the earning of revenues for the Condohotel. The Rental Management Agreement or Rental Pooling Management Agreement, as applicable, will include a description of how such costs associated with the operation and maintenance of the Condohotel Units will be allocated between the Unit Manager or Rental Pool Manager, as applicable, and the owner of a Condohotel Unit. The Unit Manager or Rental Pool Manager, as the case may be, will be entitled to deduct the Fees, Charges and Expenses from each Condohotel Unit owner's aggregate revenue distribution. In the event that the aggregate revenues from the Rental Program do not cover the full amount of the Fees, Charges and Expenses, then the owners of the Condohotel Units will be responsible for such shortfall.

21. The Unit Manager or Rental Pool Manager, as the case may be, will be entitled to receive a fee for managing the Rental Program that is based upon an allocation of rental revenue between the Rental Program Participants and the Unit Manager or Rental Pool Manager generated by the Rental Program. Distributions, applicable expenses, and fees will be calculated and paid in accordance with the Rental Management Agreement or the Rental Pooling Management Agreement, as applicable, anticipated to be on a monthly or quarterly basis.

22. Additional revenues from the Rental Program may be derived from various services provided to, and various amenities available to, Rental Program Participants and guests who rent Condohotel Units in the Rental Program.

23. It is expected that any Rental Management Agreement or Rental Pooling Management Agreement would have an initial term of not more than ten years and four subsequent terms of not more than three years each. It would renew automatically at the end of each term unless terminated in accordance with its terms which may permit each Condohotel Unit owner to provide the Unit Manager or Rental Pool Manager, as the case may be, with written notice of termination no less than 90 days prior to the end of the relevant term or may require termination only with the approval of a prescribed majority of the Condohotel Unit owners within a Condohotel or within a group of Condohotels that is serviced by a common check-in facility.

24. In accordance with the By-Law, Rental Program Participants will be provided with the right to occupy their Condohotel Units for no more, and no less, than 120 days per calendar year without restriction save and except for restrictions on use that are reasonably required to facilitate the orderly management and administration of a Condohotel by a qualified Unit Manager or Rental Pool Manager which may include advance notice of use requirements, limits on maximum number of consecutive days of use, and peak period minimum use commitments.

25. Condohotel Units will be offered for sale in Ontario through one or more of the Applicant, an Applicant Agent, a Project Entity and an agent of a Project Entity licensed under the REBB Act (a Project Entity Agent).

26. The offering of Condohotel Units will be made in compliance with the Condominium Act.

Initial Sales

27. The Applicant, an Applicant Agent, a Project Entity or a Project Entity Agent will deliver to an initial purchaser of a Condohotel Unit, before an agreement of purchase and sale is entered into, an offering memorandum (the Disclosure Document) in the form of a disclosure statement required under the Condominium Act which will also include additional information in the body of the disclosure statement relating to the real estate securities aspects of the offering prepared substantially in accordance with the form and content requirements of B.C. Form 45-512F under the Securities Act (British Columbia) R.S.B.C. 1996, c. 418, as amended (Form 45-512F), including, but not limited to:

(a) a description of the Village Core Project and the offering of Condohotel Units;

(b) a summary of the material features of the Rental Pooling Management Agreement and/or Rental Management Agreement;

(c) a description of the continuous reporting obligations of the Condohotel Corporation, the Rental Pool Manager or Unit Manager, as the case may be, to owners of Condohotel Units as more particularly described in paragraphs 32 and 33 below;

(d) a description of the risk factors that make the offering of Condohotel Units a risk or speculation;

(e) a description of the contractual right of action available to purchasers of Condohotel Units as more particularly described in paragraph 29 below; and

(f) a certificate signed by the president or chief executive officer and chief financial officer of either: (i) the Applicant; (ii) the Project Entity or in the event that the Project Entity is a project limited partnership, the general partner of the Project Entity; or (iii) its successor, as the case may be, in the following form:

"The foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it was made".

28. An initial purchaser of a Condohotel Unit will have a statutory right under the Condominium Act to rescind an agreement to purchase a Condohotel Unit within ten days of receiving the Disclosure Document or a material amendment to the Disclosure Document.

29. Purchasers of Condohotel Units will be provided with a contractual right of action as defined in Commission Rule 14-501 -- "Definitions". The Disclosure Document will describe the contractual right of action, including any defences available to the Applicant or Project Entity, as the case may be, the limitation periods applicable to the exercise of the contractual right of action, and will indicate that the rights are in addition to any other right or remedy available to the purchaser.

30. Prospective purchasers of Condohotel Units will not be provided with rental or cash flow guarantees or any other form of financial projection or commitment on the part of the Applicant, the Project Entity, the Unit Manager or the Rental Pool Manager, as the case may be, save and except for (i) the budget that must be delivered to an initial purchaser of a Condohotel Unit pursuant to the Condominium Act, and (ii) examples of financial calculations solely for the purpose of better explaining to prospective purchasers of Condohotel Units how the rental revenue is allocated or revenue pooling proceeds are calculated, as the case may be, which sample calculations will be included in the Disclosure Document.

31. The economic value of a Condohotel will be attributable primarily to its real estate component because Condohotel Units will be advertised and marketed as resort properties and will not be advertised or marketed with reference to the expected economic benefits of the Rental Pooling Management Agreement or Rental Management Agreement.

32. A Rental Pooling Management Agreement will impose an irrevocable obligation on the Condohotel Corporation or Rental Pool Manager to send to each owner of a Condohotel Unit:

(a) audited annual financial statements for the Rental Pool that have been prepared and delivered in accordance with sections 4.1 and 4.2 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) as if the Rental Pool was a reporting issuer for purposes of the Act; and

(b) interim unaudited financial statements for the Rental Pool that have been prepared and delivered in accordance with sections 4.3 and 4.4 of NI 51-102 as if the Rental Pool was a reporting issuer for purposes of the Act.

33. A Rental Management Agreement will impose an irrevocable obligation on the Condohotel Corporation or Unit Manager to send to each Rental Program Participant statements of revenues and expenses for his, her or its Condohotel Unit for each quarter or such shorter period as may be stated in the Rental Management Agreement, on or before the 60th day after the date to which they are made up.

Subsequent Resales

34. A Rental Pooling Management Agreement or Rental Management Agreement, as the case may be, and the Declaration of the Condohotel Corporation (the Declaration) will impose an irrevocable obligation on the Rental Pool Manager or Unit Manager or the Condohotel Corporation (if not delivered by the preceding persons), as applicable, to deliver to a subsequent prospective purchaser, upon reasonable notice of an intended sale by the owner of a Condohotel Unit, and before an agreement of purchase and sale is entered into:

(a) the most recent audited annual financial statements (which include financial statements for the prior comparative year) and, if applicable, interim unaudited financial statements for the Rental Pool (collectively Financial Statements); and

(b) either (i) quarterly statements of revenues and expenses for the Condohotel Unit for the two-year period preceding the entering into of the agreement of purchase and sale for the Condohotel Unit but only to the extent that the Condohotel Unit was subject to the Rental Management Agreement during such two-year period; or (ii) to the extent that the Condohotel Unit was subject to the Rental Management Agreement for less than two-years, the quarterly statements of revenues and expenses for the Condohotel Unit for such period preceding the entering into of the agreement of purchase and sale for the Condohotel Unit that the Condohotel Unit was subject to the Rental Management Agreement (the Quarterly Statements, and collectively with the Financial Statements, the Financial Information).

35. A Rental Pooling Management Agreement or Rental Management Agreement, as the case may be, and the Declaration will impose an irrevocable obligation on:

(a) the Rental Pool Manager, Unit Manager or the Condohotel Corporation (if not delivered by the preceding persons), as the case may be, to deliver the Disclosure Document to a subsequent prospective purchaser of a Condohotel Unit upon receiving reasonable notice of a proposed sale of the Condohotel Unit that is to take place either prior to, or within 12 months of, the issuance of permission to occupy the relevant Condohotel Unit; and

(b) the Rental Pool Manager, Unit Manager or the Condohotel Corporation (if not delivered by the preceding persons), as the case may be, to deliver a summary of the Disclosure Document (the Disclosure Document Summary) to a subsequent prospective purchaser of a Condohotel Unit upon receiving reasonable notice of a proposed sale of the Condohotel Unit that is to take place any time following the expiration of a period of 12 months from the date of issuance of permission to occupy the relevant Condohotel Unit.

36. A Disclosure Document Summary that is delivered to a prospective purchaser of a Condohotel Unit which is subject to a Rental Pooling Management Agreement will include:

(i) items 1, 2(1), 4, 5, 6, 8(1), (2), (3) and (4), 9(b) and 15 of Form 45-512F with respect to the proposed sale, modified as necessary to reflect the operation of the Rental Pool and the form of disclosure, and

(ii) items 11(2), (3) and (4) of Form 45-512F with respect to the Rental Pool Manager under the Rental Pooling Management Agreement modified so that the period of disclosure runs from the date of the certificate attached to the Disclosure Document Summary,

and will be certified by the Rental Pool Manager in the form of the certificate required pursuant to item 17 of Form 45-512F.

37. A Disclosure Document Summary that is delivered to a prospective purchaser of a Condohotel Unit which is subject to a Rental Management Agreement will include,

(i) items 1, 2(1), 4, 5, 6, 8(1), (2), (3) and (4), 9(b) and 15 of Form 45-512F with respect to the proposed sale, modified as necessary to reflect the operation of the rental management arrangement and the form of disclosure;

(ii) items 11(2), (3) and (4) of Form 45-512F with respect to the Unit Manager under the Rental Management Agreement modified so that the period of disclosure runs from the date of the certificate attached to the Disclosure Document Summary; and

(iii) a summary of the Unit Manager's past experience that includes items 11(2), (3) and (4) of Form 45-512F with respect to the Unit Manager modified so that the period of disclosure runs from the date of the certificate attached to the Disclosure Document Summary,

and will be certified by the Unit Manager in the form of the certificate required pursuant to item 17 of Form 45-512F.

38. A Rental Pooling Management Agreement or Rental Management Agreement, as the case may be, and the Declaration will impose an irrevocable obligation on each owner of a Condohotel Unit to provide:

(a) the Rental Pool Manager or Unit Manager, as the case may be, and the Condohotel Corporation with reasonable notice of a proposed sale of the Condohotel Unit; and

(b) a subsequent prospective purchaser of a Condohotel Unit with notice of his, her or its right to obtain from the Rental Pool Manager, Unit Manager or the Condohotel Corporation (if not delivered by the preceding persons), as the case may be, Financial Information and the Disclosure Document or Disclosure Document Summary, as the case may be.

39. A Rental Pooling Management Agreement and Rental Management Agreement will not require purchasers of Condohotel Units to give any person any assignment of their right to vote in accordance with the Condominium Act or condominium bylaws, or to waive notice of meetings of the condominium corporation in respect of the Condohotel.

Order

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS RULED, pursuant to subsection 74(1) of the Act, that the distribution of a Condohotel Unit by the Applicant, an Applicant Agent, a Project Entity and a Project Entity Agent, is exempt from sections 25 and 53 of the Act, provided that:

(a) every initial purchaser receives all of the documents and information referred to in paragraph 27 above, and a copy of this ruling, prior to entering into an agreement of purchase and sale;

(b) every initial purchaser receives the ten (10) day period for rescission described in paragraph 28, above; and

(c) any subsequent trade of a Condohotel Unit shall be a "distribution" for the purposes of the Act, unless:

(i) the seller of the subject Condohotel Unit is not a developer or an agent acting on such developer's behalf;

(ii) the seller of the subject Condohotel Unit provides written notice to the Unit Manager or Rental Pool Manager, as the case may be, and the Condohotel Corporation of his, her or its intention to sell his, her or its Condohotel Unit;

(iii) the prospective purchaser of such Condohotel Unit receives, prior to entering into an agreement of purchase and sale, all of the documents and information referred to in paragraph 34 and 35 above, as the case may be; and

(iv) the seller, or an agent acting on the seller's behalf, does not advertise, market, promise or otherwise represent any projected economic benefits of the Rental Program to any prospective purchaser.

AND IT IS RULED, that the Confidentiality Relief is granted.

OSC File #: 2024/0163