RECOMMENDATION:

THAT the eligibility, administration and valuation policies related to the sale of lots in the Town’s Markham Heritage Estates subdivision be amended, as recommended by the CAO and Commissioners Committee (CCC), as follows:

That the number of times a person, and/or his or her spouse, can purchase a lot in Markham Heritage Estates be limited to one.

2. That the Town subscribe to a credit check service and undertake a credit check on each prospective purchaser as a component of the review of financial capability to successfully undertake a heritage relocation and restoration project in Markham Heritage Estates.

That the revised lot pricing as outlined in Appendix ‘A’ to this report, effective November 1, 2005, be received and made public.

That the value of the forgivable second mortgage held by the Town be equal to the lot price.

PURPOSE:

The purpose of this report is to amend certain eligibility, administration, and valuation policies related to the sale of lots in Markham Heritage Estates, as recommended by the CAO and Commissioners Committee (CCC), in the following areas:

- limit on number of purchases by an individual (given that lot prices are subsidized by the Town)

- requirement for credit check in determining financial capability of prospective purchasers

- reporting out on lot pricing update effective November 1, 2005 (CAO’s delegated approval)

- update to terms of Town’s 5 year forgivable mortgage.

DISCUSSION:

Markham Heritage Estates was created by the Town in the late 1980’s

Between 1981 and the creation of Markham Heritage Estates in 1988, Markham lost over 40 dwellings listed in the Markham Inventory of Heritage Buildings. While some interest was shown in relocating these structures for continued use as residences, the associated costs of acquiring a lot in Markham and relocating the structure were considered prohibitive.

The Markham Heritage Estates subdivision was created in the late 1980’s by the Town of Markham as a refuge of last resort for the relocation of threatened heritage buildings that cannot be integrated within new development. A financial incentive in the form of reduced lot prices is offered by the Town to assist property owners in undertaking the costs of relocation and restoration. To date, 28 buildings have been relocated to the subdivision. The Town recently acquired the former Lunau homestead (5884 Sixteenth Avenue) which brings the total number of heritage buildings in the subdivision to 29. There are 15 lots remaining in the subdivision (two of which would be created from the existing Block 39).

The subdivision offers reduced lot prices

When the Town created the heritage subdivision, Council priced the lots below market value as an incentive for purchasers to relocate and restore the Town’s threatened heritage resources. The Town has attempted to strike a reasonable balance between typical market value and the ongoing desire to discount lot prices to encourage individuals to take on projects of this nature.

Council has delegated to the CAO authority to review and update lot pricing in the Heritage Estates Subdivision. The Town’s Property Manager recently undertook a review of lot pricing, and recommended to the CAO a 9 % increase in lot pricing. This increase was authorized by the CAO and took effect on November 1, 2005 (see Appendix ‘A’). The current pricing continues to represent a significant discount in comparison to true market value, as an incentive for heritage preservation. For example, Lot 3 has a true market value of $207,000 but the Town’s lot price is $105,000, representing a 45 percent discount.

Forgivable mortgage is placed on the property for five years

As the lots are sold below market value, the Town uses a forgivable mortgage mechanism to prevent property speculation and individuals “flipping” the property. The principal amount of the mortgage is registered on the property title. There is no interest and the mortgage is forgivable annually over a five year term (reduced 20% per year). The Finance Department reduces the mortgage amount annually and the mortgage is discharged after five years. This mechanism only affects the property owner if they choose to sell the property within the five year period. Based on a review of the history of Markham Heritage Estates, no one has left within the five year period and the majority of residents continue to own their property.

Concurrent with the lot pricing update, the Town’s Property Manager has undertaken a review of the forgivable mortgage valuation process, and is recommending an update as outlined below.

The lot discount program was originally designed so that the second mortgage would be calculated as the difference between a rate of $3,000 per front foot of the lot and the predetermined sale price. This calculation is provided in the following table.

In Thousands ($1,000)

Lot 3 Frontage

1988 Lot Price

1988 Value @ $3,000/FF

2^nd Mtg.

2000 Lot Price

2^nd Mtg.

2003 Lot Price

2^nd Mtg.

2005 Lot Price

2^nd Mtg.

68.90 ft

$61.0

$206.7

$145.7*

$74.0

$132.7

$96.0

$110.7

$105.0

$101.7

$206.7 - $61.0 = $145.7 (1988) *
$206.7 - $105.0 = $101.7 (2005)

As illustrated, the lot prices have been increasing but the forgivable second mortgage has been deceasing proportionately. A further flaw of the system is that larger lots but with typical frontages create wide discrepancies in the mortgage calculation. For example, Lot 6 is larger than Lot 3.

In Thousands ($1,000)

Lot	Size (Acres)	Frontage (feet)	2005 Lot Price	2^nd Mortgage
3	0.192 acres	68.90	$105.0	$102.0
6	0.326	68.77	$129.0	$77.0

As illustrated, the value of Lot 6 is higher than Lot 3 but the corresponding forgivable second mortgage is much lower and below the cost of relocating a house to Heritage Estates Subdivision, currently estimated at around $100,000.

In order to provide equality and to simplify the calculation, going forward the forgivable second mortgage is recommended to be equal to the lot price. There will be no loss to the Town and employing this method, as lot prices continue to rise in the future, so too will the correspond

Currently, there is no limit on the number of times one can acquire a lot in the subdivision

Once a property owner has resided in the subdivision for five years, they are free to sell their property without penalty, and they may attempt to acquire another threatened heritage property for relocation to Markham Heritage Estates. To date, two property owners have chosen to acquire a second lot at Markham Heritage Estates, after a minimum five year residency in the subdivision. A third such proposal is currently in process, and the sale (Joshua Miller House) was authorized by Council on November 15, 2005.

CCC is recommending that individuals not be permitted to participate in the Markham Heritage Estates more than once

The issue of whether an individual who already has acquired a lot in Markham Heritage Estates should be permitted to sell their property and acquire another lot has recently been under discussion at CCC. The current policies for the heritage subdivision do not prohibit this and it has been noted that two individuals already have undertaken this option, with a third in progress.

Because the Town offers lots at a reduced price, which represents a personal benefit to purchasers, there is the risk of perception of personal benefit arising from a public subsidy. While it is well acknowledged and understood that a reduced lot price in reasonable to offset the many costs and challenges in relocating and restoring a heritage house, the Town subsidy can come into question if the same individuals are seen to be benefiting more than once.

Therefore, it is recommended that the policies associated with Markham Heritage Estates lot sales be revised to limit the number of times a person, and/or his or her spouse, can purchase a lot at Markham Heritage Estates to one.

If a situation arises where a significant heritage dwelling is threatened with loss and the only person interested in relocating the building to Markham Heritage Estates is a former/current Estates property owner, this policy can be waived at Council’s discretion, in that instance.

CCC is recommending that the Town undertake a credit check on prospective purchasers

Individuals wishing to purchase a lot in heritage estates must satisfy the Town as to their financial capability. In the past this has typically been based on a letter from the applicant summarizing their financial status, attaching a budget to undertake the lot purchase, heritage relocation and restoration project, and attaching a letter from a financial institution attesting that the applicant qualifies for a mortgage in a sufficient amount to undertake and complete the project. This material is then forwarded to Council in a confidential report, and Council must confirm satisfaction with the applicant’s financial ability before the lot sale can proceed.

CCC, on the advice of the Finance Department, is now recommending an additional step be undertaken by the Town in determining the financial ability of a prospective purchaser. Specifically, it is recommended that the Town subscribe to a credit check service (at an annual fee of $750.00) and undertake a credit check on each prospective purchaser (at a fee of $20.00). This is to protect the Town’s interest relative to possible delays or incompletion of a restoration project by a purchaser of a lot in the Heritage Estates, given the risks and often unpredictable costs associated with relocating and restoring a heritage house.

It has been noted by a number of Heritage Estates homeowners that in reality their costs were much higher than those reflected in their initial budget estimates. Property owners at Heritage Estates may also be subject to higher operational and maintenance costs (i.e. heating and air conditioning costs due to limited insulation and single pane heritage windows, ongoing maintenance of wood heritage features such as wall cladding, soffit, fascia, porches etc ..). The credit check will assist the Town, and applicants, in confirming financial capability.

FINANCIAL CONSIDERATIONS:

As outlined in this report and recommendation.

BUSINESS UNITS CONSULTED AND AFFECTED:

The Town’s Property Manager has recommended the lot pricing update and the revision to forgivable mortgage valuation. In regard to the CCC recommendation for a “one time purchase” limit, Heritage Planning staff advise that there is a limited number of individuals who are interested and willing to undertake heritage restoration projects. This concern can been addressed, in part, by the fact that this new restriction could be waived at the discretion of Council where a significant heritage dwelling is threatened with loss and the only interest in relocating the dwelling is from a current/former Estates property owner.

ATTACHMENTS:

Appendix ‘A’ – Revised Lot Prices (Effective November 1, 2005)

Andy Taylor, C.A.

Commissioner Corporate Services

Jim Baird, M.C.I.P., R.P.P.

Commissioner of Development Services

Q:\Commissioner\Executive\Heritage Estates Report Nov 2005.doc

		GENERAL COMMITTEE


	TO:	Mayor and Members of Council

	FROM:	Andy Taylor, Commissioner Corporate Services Jim Baird, Commissioner of Development Services

	PREPARED BY:	Same as above

	DATE OF MEETING:	2006-Jan-09

	SUBJECT:	Markham Heritage Estates Proposed Revision to Lot Sale Policies