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Suite 200 – 1695 Marine Drive

North Vancouver, BC V7P 1V1

Phone: 604.983.6670

Fax: 604.983.6607

H ADDOCK  

&

COMPANY Barristers and Solicitors

Reply to: C. Grant Haddock  

E-mail: cgh@haddock-co.ca

Our File: 316-001

Date: March 13, 2011

VIA EMAIL

Grace MacInnis Housing Co-operative32 – 825 Salsbury Drive

Vancouver, BC V5L 4A3

Attention: Cabot Lyford

Dear Mr. Lyford:

Re: General

I write to report on the modification of Lease proposed by the City of Vancouver.

As you may recall the Co-op is sitting on land leased from the City of Vancouver. In order to complete

the financing of the building envelope remediation work, and to extend amortization periods to makethat work affordable to the Co-op, CMHC required that the land lease be extended by the City of 

Vancouver. After some protracted negotiations, the City of Vancouver agreed to extend the lease of 

your Co-op and three others in the City by 20 years. The document that we received from the City of 

Vancouver is a result of that negotiation.

The Modification of Lease extends the life of your lease for another twenty years to September 18,2046. The terms of your original ground lease stay the same except for the following:

1.  Environmental

There are now more extensive environmental provisions in the Modification of Lease, all of which have been developed since your current lease was drafted in 1985. Basically, it requires that the Co-op not to permit any contaminants on the property. In addition, it also requires the Co-op maintain secrecy over 

any environmental reports that the Co-op has obtained, either on its own, or through the City and not tell

anyone about those reports unless compelled by law.

All in all, the environmental provisions are fairly standard and found in most mortgages and sale

agreements.

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2.  New Operating Agreement

The Co-op’s Operating Agreement with CMHC will eventually end and with it, the subsidies thatCMHC provides. When the Co-op was developed, it was contemplated that the mortgage obligations of 

the Co-op would also end when the operating agreement ended. However, with the building envelope

remediation, that will not be so and the Co-op’s mortgage obligations to CMHC (or some other lender)

will continue beyond the end of the operating agreement.

The Modification of Lease provides for a swapping of operating agreements with the Co-op’s new

operations master being the City of Vancouver. While other co-ops will be free to pretty well decidehow they want to operate after the operating agreements have ended, Grace McInnes will not have that

option and will have to maintain operations pursuant to the terms of the Lease Modification Agreement.

Among some of the terms within the Lease Modification Agreement regarding continuing operations arethe following:

1.  25% of the units in the Co-op will, at all times, be occupied by CORE needs individuals who will

 pay 30% of the average market rent;2.  The balance of the units will be occupied by members who will pay 85% of the average market

rent;3.  All occupancy agreements with members will have make reference to the terms of this

modification of lease; and

4.  If it turns out that the above arrangements result in deficit operations by the Co-op, the Co-op

may, with the permission of the City of Vancouver, increase rents for all members, includingCORE needs members, to such a level that the Co-op is able to meet its ongoing obligations

without incurring a deficit.

I was not aware that a term of the lease extension was the City was going to replace CMHC and impose

another operating agreement following the end of the current CMHC operating agreement. Thefundamental difference between the two agreements is that there will be no yearly lump sum subsidy to

distribute.

The Board of Directors are going to have to carefully consider the ramifications of this ongoingoperating agreement type provision within the Lease Modification and extension. With the end of 

subsidy and ongoing mortgage obligations, I have no idea whether the Co-op has the financial

wherewithal to provide self subsidized housing and collect the level of housing charge as dictated by thisagreement and still remain financially viable. I suppose in the end that all of that might be moot because

of the “out clause” (No. 4 above) that provides that the Co-op can raise rents with the permission of the

City of Vancouver should the Co-op be in a deficit position. In any case, this might be something theBoard of Directors would be interested in looking at if they have not done so already. The Board of 

Directors should also remember that the Co-op needs this lease extension as it a fundamental part of the

 building envelope loan financing.

Finally, the Co-op should also be aware that if they are to get into this lease extension, certain co-op

qualifications have to be made to the City of Vancouver because of the necessity to amend the Co-op’s

Occupancy Agreement which is attached as a schedule to the Rules so that the Lease Modificationdocument is included in the term of the Occupancy Agreement. An amendment to the Rules will require

a 2/3rds vote at a special general meeting and there is always a possibility that the members will reject

an amendment to the Rules.

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If you have any questions or comments, please do not hesitate to contact me.

Yours truly,

HADDOCK & COMPANY

Per:

C. Grant Haddock 

CGH:dbb

Enclosure