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The following diagrams illustrate the method: Les cartes, planches, tableaux, etc., peuvent dtre fiimis A des taux de reduction diff^rents. Lorsque le document est trop grand pour dtrc reproduit en un soul cliche, il est film6 A partir de I'angle sup6rieur gauche, de gauche A droite, et de haut en bas, en prenant le nombre d'images nAcessaire. Les diagrammes suivants illustrent (a mithode. errata I to t ) pelure, on it D 32X 1 2 3 1 2 3 4 5 6 "^'•'wi ftim r .. ' * ' '' " ■ n 'I * ■ ■ ^ k \ m 1 1' i < .jSiMikuJSfeki-ify t^^im^m^mi^mg^m^mpmi^^^^^i^m^sm^t^fW* Leasebold ^^/^rbiirations: HOW THE SYSTEM OF RENEWAL AWxVRDS RESULTS IN PRACTICAL CONFISCATION. BY rmiJJPS THOMPiSOX. Facts are Stubborn Things. — Old Ada(;k TORONTO; Jamks & Williams, Fkinters, io King Stkeht I'.ast. 1896. lAN^hai^tii .^nl .^IKiinfe^Sai ^aM-^lll ^kto^dJOit^iRi >*<* I I •^ •T. il ?j .^4^ m > .J )■ rvl I r -\ \ i lit ] ,1; ' i .■J 1 r -»Cif " LEASEHOLD ARBITRATIONS." Opinions of tlie Press. [ Toronto Globe, 23nd Aprii,, 180C.J THE LEASEHOLD PROBLEM. Mr. Phillips Thompson, in a terse and well-reasoned argument, has brought before the public again the injustice that so often attends upon leasehold arbitrations in this city. The author uses no honeyed words in describing the existing condition of affairs. He points out how formidable the power of the ground landlord has become in the business quarter of Toronto, and how, especially by two or three estates which control large tracts of land, existing statutes and forms of contract " have been wrested from their original purport and have become the instruments of plunder and confiscation." In opening it is pointed out that during the boom land Wiis valued not according to what it would produce if properly used for perman- ent business, but for what it would sell for to some third party to sell again. "A poker-chip value," Mr. Thompson calls this, and quite independent of the . earning capacity. This fictitious value vfs^s made the basis of renewals of ground leasee during and after the boom. The conservative principle, that land is worth what it will produce in rent, properly used, was laid aside, and the gambling standard was applied by valuators and arbitrators drawn from the ranks of land-boomers, and naturally in favor of keeping up the fictitious values. Mr. Thompson gives a sketch of what actually occurred in many an arbitration, which resulted in the ground landlord securing an <~xorbitant rent and the lessee being stripped of his buildings and left penniless, when he speaks thus of " expert " testimony: — " Arbitrators are under obligation to decide upon the evidence presented to them, and any qualms of conscience were apt to be speedily set at rest by the appearance of a host of ' expert ' witnesses summoned on behalf of the landlord. In judicial affairs professional expert testi'jaony has become a by-word and a mockery. It is notoriously the most »;ontradictory, unre- liable and generally suspicious class of evidence with which Courts have to deal. It is beyond the reach of perjury penalties, as an expert merely swears to his professional opinion, and, however absurd or erroneous it may be, thore ia no possible means of proving that it is not the expert's conviction. The coincidence that the opinion of the expert is invariably, under all circumstances, favoraWe to the party who calls him and pays his fee has been too striking to escape attention. In Justice to a class against whom sever«> things have been said, it is but fair to remember that there is no ground to charge them with the vice of ingratitude. Drawn from the ranks of real estate boomsters, the lease arbitration expert was instinctive- ly and by habits of thought, as well as by immediate financial obligation, <>nlisted on the side of landlordism and high valuations." A number of examples of the wrongs inflicted upon lessees are given, the more notable having reference to a number of the Baldv'n leaseholds on King Street west. In almost every case where leases have fallen in, the renewal rental has been fixed at a rate that leaves nothing to the lessee for his improvements, and It Is shown that the practice is not infrequent of abandoning the buildings rather than pay the ground rent fixed. We entirely agree in the conclusion arrived at. It is monstrous that citizens who lease a plot of land, erect buildings upon it,, and oftentimes spend twenty years of their lives in building up a profitable business upon the land, should be left entirely at the mercy of the gir^nd landlord, who, although he does nothing to increase the value of the property, can claim at the end of the lease all the product of the lessee's exertions. There are other forms of slavery than the buying and selling of human flesh, and the slavery of the leaseholder is not the least objectionable. The law of con- tract is held entirely too sacred in cases where justice is on one side and the law on the other. The Legislature could not do a better service to Toronto than — after full inquiry into the evils of the leasehold system — could be done by the framing of a law which shall divide the earnings of land and buildings equitably between the landlord and the lessee. The evil is a growing one. and in another generation, if the power of the ground landlord goes unchecked, we shall have our counterparts of the Westmin- sters and Bedfords of London and the Astor.8 of New York. rTono>TO Would, 218T Apiiiii, 189G.] LEASEHOLD ARBITRATIONS. The great surprise is that people have so long endure 1 the Injus- tice of the present system. It would be amusing if it were not so con- temptible and dishonest to see the calm and delibrate way certain families who never did an honest day's work in their lives appropriate the earnings of others. I have a case in mind where a large and indolent family have lived like parasites on the earnings of Iheir lessees in a way that would discount the worst Irish landlord that evjr wn.s shot. At renewals they not only want all the revenue derived from the land and buildings, but demand that their lessees should throw in their other rv I , earnings as well f* church or a hospital, '.e honor of being h'ssces of tbis or that family, a matters little which, it all works the same way. (TonoNTo World, 28th May. 1H96.| ARBITRATION VALUES. Editor World: You recently had an article commenting on Phillips Thompson's pamphl(>t on leasehold awards, which are strongly condemned. Two recent occurrences justify the contempt which is felt for expert «'vi- dence, as given by hired boomsters. Here they are briefly: Sir D. Macpherson received |22,418 on expert evidence for a piece of property he had offered the city for |4.000. The city jilso paid $1,920 costs. Expert evidence awarded $45 per foot as ground rent on the north side of King Street. The adjoining lot, same size, owned by the same parties that exact |45 per foot, has just been leased for the sam»' business at |4 per foot. Hiivlng no lessee to victimize, they were obliged to accept the market value. The same expert whose evidence sustained the |45 per foot award was unable to get more than $4 per foot for the adjoining lot in- cluding building. This expert generally backs up his outrageous valuation with a state- ment that he is at that moment negotiating a sale at these prices. These regotiations are never heard of ngain and are spoken of as " The Mythical Ca°e." The only test of value is the rental, not the extravagant statements of unscrupulous witnesses. A VICTIM OF THE ARBITRATION SWINDLE. LEASEHOLD AWARDS. By Phillips Thompson. A system of spoliation. The notorious Baldwiu awards. The Riddle award. Rapacity of the Hospita". trustees. Knox Church ignores the eighth commandment in dealing with tenants. Copies of the phamphlet for sale at The CARSWELL COMPANY (Limited), 30 Aclelaide Street East. I V V > , . / /jj^fte^ V?**"*»»'-.r: Vj- T Leasebold ^rbitFations WvA HOW THE SYSTEM OF RENEWAL AWARDS RESULTS IN PRACTICAL CONFISCATION. 1 BY PHILLIPS THOMPSOK in V t , " Facts are Stubborn Things." —Old Adagb. m- TORONTO: James & Williams, Printers, io King Street East. 1896. V^ wom a iu.^ »fp" -. .! I: -ftl^ X LEASEHOLD ARBITRATIONS. It is one of the fundamental maxims of English jurisprudence that "There is no wrong without a remedy." This adage, like most others, must be taken with considerable allowance. In the inevitable imperfection of human institutions, it is impossible by any code, however wisely framed or impartially administered, to provide for ideal justice or anticipate the abuses and complications which arise in the course of social development. But, making all reasonable deductions on this ground, the purport of the maxim remains that, in any case where changing social conditions or unforeseen developments give rise to any widespread and general abuse, causing loss and hard- ship in any considerable degree, the existence of such wrong justifies such an interpretation of the law as will meet the exigencies of the case. Of late there has arisen in this Province — and more especially in the City of Toronto — a formidable abuse, which has been productive of much oppression and spoliation under the forms of law, which calls loudly for redress. Existing statutes and forms of contract, owing to circumstances entirely beyond human prevision when the foundation of the evil was laid, have been wrested from their original purport and become the instruments of plunder and confiscation. Citizens who have, by years of honest industry and legitimate business enter- prise, acquired a modest competency or a smaller amount of means, suddenly find themselves stripped of the results of a lifetime of toil and care to enrich a class of wealthy idlers and parasites — the mere "caterpillars upon the leaf" — who do nothing in return for the wealth they are permitted to appropriate. The enormous and wholly un- justifiable increase in ground rents for centrally-situated property is the proximate cause of this injustice. It is many years since the leasehold system — very general in Great Britain — was introduced here in connection with the class of real estate which, by reason of its situation, was considered as likely con- tinuously to increase in value with the growth of the City. Most of ' ll -'-1 "^-mms^'^- I 4 LEASEHOLD ARBITRATIONS. the leases were drawn for a period of twenty-one years, with stipula- tions for a renewal at the end of that term upon a rental to be settled by arbitration upon the usual principle, viz. : each of the parties to appoint an i^rbitrator and the two to nominate a third, the decision of any two to be final. Where the land was either vacant or occupied by old buildings, the lessee frequently covenanted to erect new build- ings of a specified value. So - \r as the terms of the document went, the leases were apparently not unreasonable. It is in the practical working out of the arbitratioi clauses that the difficulty arises. A brief survey of the situation will shoA" how the system operates to the loss of leaseholders and the enrichment of landlords by legalized fraud. During the boom, the values — or rather the prices — of real estate increased enormously. Centrally-situated property went up by leaps and boimds ; the spirit of speculation seized upon the whole com- munity, and land-dealing became practically land-gaml ling. The only L^afe, business-like estimate of the value of any given piece of land, either in city or country, is what it will yield for the most pro- ductive use to which it can be permanently put. When this principle is r.bandoned and land passes from hand to hand, not out of con- sideration of what it will produce as interest on invested capital but of whtit it will presumably sell for to some third party to sell again, r) e linv-" between legitimate business and land-gambling has been pissed. When the problem^^^'^al future is discounted7 the so-called value at which it figures away beyond the capitalization of any present or :i in no possibility of carrying the property under such a burden except at an annual loss, the original holders dropped their interests in the leases and forfeited their buildings. The lessors, with the property thrown upon their hands, found it impossible to secure new tenants insane enough to undertake to assume the load. Two of the lots were finally leased at considerably reduced rentals, while Lot No. 2 is, or was at a very recent date, still in the market. Among numerous illustrations of the iniquitous nature of the system furnished by the Baldwin property on King Street West, may be mentioned the store occupied by Joseph McCausland. The ground rent was in- creased some two years ago from $5 to $37.50 per foot. The estate claimed $40 per foot, and the tenant, deterred by the enormous expense attendant upon an arbitration — which, in all probability, would have resulted adversely — effected a compromise, which secured him this slight abatement of the extortionate demand. A store a few doors West, with a frontage of about fifty feet, is occupied by W. J. McGuire, plumber. His ground rent was increased from $4 to $45 per foot, at which rate he paid rent for two years, when he sought legal redress. A greatly-involved and costly struggle ensued, which was terminated by his agreement to pay at the rate of $35 per foot for a term of six years. Mr. McGuire, in pur- chasing the leasehold under the old rental, paid for the buildings erected by the former tenant of the property. In this locality, a large proportion of the stores are now vacant and likely to remain so. It is sufficiently far from the centre within which retail business is being more and more con- centrated by improved methods of communication, to be adversely affected by the great change in business methods which has developed during the last few years. It is not likely to be increased in value by any possible increase in the population of the City. King Street West is being more and more abandoned to those businesses which do not require a central location or afford profits suffi- cient to bear the burden of heavy ground rents. In the light of the great change in the retail system, which is effacing so many of the smaller dealers and concentrating business in the great departmental stores, the monstrous and flagrant injustice of the principle accepted as an axiom of arbitration — that probable future increase of population must be taken as a factor in fixing rents — is more than ever apparent. The Hospital trustees own a property on King Street West, comprising two shops, Nos. 157 and 159, with a total area of twenty-six feet frontage by two hundred and ten in depth. The rental, under a lease which expired in April, 1891, was $4.50 per foot frontage. On April ist of that year, this was fixed at $18.75 ^o"" the ensuing twenty-one years, being an increase of over 416 per cent, over the old rate. .r^- ' . ' f? l -^.Vjei' I m mi.,•, Taxes on Rear Portion 12 20 $729 10 : ,\ . : , V ,v _: ; • Deficit $99 'o ','' .'tf This allows nothing for interest upon cost of building, erected by the tenant at an outlay of $7,500, repairs, colle:;tion of rents, etc. Adding these to the deficit on current expenses, the total loss to the tenant was as follows : -^ >.-;.; .?• : - v- :. \ V Is -^ -,-J Deficit as al)ove $ 99 10 Interest at 6 per cent, on cost of buildings 450 00 ,; Repairs 75 00 . ' Collection of Rents 31 50 '.•.,. Gross Deficit $65560 The Hospital trustees refused the unfortunate lessee all redress, and on his abandoning such a hopeless and unprofitable position, pushed their legal rights to the utmost and took possession of the $7,500 building without compensation. The law does not characterize this action as robbery, and the dictionary-makers do not seem to have invented any less emphatic word which appropriately describes it. .<>-— i 12 LEASEHOLD ARBITRATIONS, T^ i i ! The enormous expense of arbitrations, swollen by the heavy fees payable to professional experts, has already been alluded to. This injustice is, in some cases, almost as crushing aS the usual results of an arbitration in increasing rents. Under the award system, the lessor, even though the lease stipulates that the expense shall be divided between the parties, has every incentive to call a large num- ber of professional experts, who, apart from the fact that their interests are all in favor of high values, have naturally the inevitable piofesdonal bias towards the side upon which they are retained. The more experts who are called in to pile up figures as to the value of the property in dispute, the easier it wiV be for the lessor's representative to insist upon a finding in accordance with the mass of 'ccumulated testimony ; and however much the lessee's arbitrator and the third man may be desirous of doing impartial justice, they often find them- selves practically forced into assenting to an award which they know to be preposterous, simply because of the weight of one-sided — and. practically purchased — evidence presented. The expert, moreover, has an additional interest in upholding values, as the more extrava- gant his figures are, the more he will be sought after in the same capacity in future arbitrations. His r>rofessional services will be in frequent requisition, not because of his impartiality and sound judg- ment, but precisely for opposite reasons. In short, the system has created an illegitimate profession — without any of the safeguards of preliminary training, legislative sanction or corporate or individual responsibility by which the other professions are surrounded — which presents to its followers every incentive to unscrupulousness and dis- regard of ordinary principles of right and justice. Daniel M. Defoe is the lessee of the premises Nos. gg to iii Adelaide Street West, with a frontage of 131 feet, where he has erected extensive machinery and plant for the supply of power for manufacturing purposes, his investment in buildings, machinery, etc., being about $40,000. The former ground rent was $500, the lessors being the Baldwin Estate. In i8gi, an award was entered upon, the arbitrators being H. L. Hime for Mr. Defoe, J. Herbert Mason, of the Canada Permanent Loan and Savings Co., for the Baldwin's, and J. J. P'oy as third arbitrator. The arbitration was a tedious and costly one, and resulted disastrously for Mr. Defoe. The ground rent was raised from $500 to $2,400, a sum which absorbs the entire profits of the business and renders the heavy investments of the lessee practically valueless as a source of income to him. Now, as to the cost. The arbitrators' fees amounted to $452, one half of which — $226 — was paid by Mr. Defoe, in addition to all the expenses of conducting his K ,*:> 'v. it- "■^rr--;-- '\ 'c'' LF.ASRHOI.D ARBITRATIONS. U h- own side of the case. Not satisfied with this, the rapacious landlords insisted that he should pay one-half of the bill of $1,500 incurred by them in experts' fees and other items in presenting thei. case to the arbitrators. This, as Mr. Defoe had settled his own bill x). costs, he successfully resisted. The figures give some idea of the ordinary expenses of arbitration proceedings. When it is in the power of exacting lessors to run up bills of costs in this fashion, it is ho wonder that many tenants, as in several cases heretofore referred to, are ready to compromise upon an extravagantly high basis rather than enter upon the unequal contest. The great merit formerly claimed for arbitration over the procedure of the courts of law was that of comparative cheapness and simpli- city ; but, in view of the en irmous costliness and complication of its modern development in connection with leasehold cases, an old- fashioned Chancery suit would appear to be an inexpensive luxury in comparison. '■ ' ' ' • . J ■.; Henry Langley is the lessor of a lot on the North side of King Street West, near the corner of York Street, belonging to the Baldwin Estate. He sub-leased the property from the late J. D. Irwin, the first lessee, at a ground rent of $300, and erected upon it a first-class three-storey building, in every respect suitable to the locality, at a cost of $4,500. Three ye^rs ago, the sub-lease by which he held expired, and an award was entered uj)on to fix the renewal ground rent. The lessee's arbitrator was Robert Jaflfray, the sub-lessor's Mr. Garland and the third arbitrator Mr. Gowanlock. The rental was fixed by the decision of the two latter at $625, with the result of com- pletely wiping out Mr. Langley's investment. Though the increase is by no means so great as in some of the instances previously given, when the unprogressive character of the locality and the low rents obtainable are considered, few, if any, of the already-noted acts of spoiiition were of a more outrageous character. The gross annual return of the building is about $900, which is the utmost that can be anticij ated for many years, any fluctuation being likely to take the form of a decrease, as the neighborhood abounds in vacant buildings. Out of this have to be paid the renewal ground rent of $625 ; taxes, amounting to about $370 ; insurance, repairs and other expenses of maintenance, which annually leave a large deficit in place of any interest on Mr. Langley's investment. The case is a peculiarly flagrant one, as the person profiting by the increase occupied the position of a mere middleman, receiving the ground rent — or rack rent, as it would be termed in Ireland — deducting the landowner's share and putting the remainder in his own pocket, without trouble or ^V TT 14 LKASF.HOLD ARBITRATIONS. exertion of any kind. This property now stands at a very high rent, even as compared with neighboring leaseholds. The ground rent of a lot a few numbers West, on the opposite side of the street, has recently been reduced to $9 per foot. Mr. Langley pays at the rate of $25 per foot for a much shallower lot. A very large number of other cases could be given, which would be a substantial repetition of the same story of wrong and injustice with varying details ; but the following instance may well conclude the list : A central property on Adelaide Street East, a short distance from Yonge Street, comprising a frontage of ninety feet, was leased for $1,850 ground rent. The lessee invested at least $50,000 in building, contracting for that purpose a loan of some $28,000. He fancied that the building afforded ample security for the sum, and that when it became necessary, under the terms of the mortgage, to renew the loan, he would have no trouble in doing so. The mortgage fell due ; but, on applying to investors and loan corporations, he soon ascer- tained that the fact that the building was erected upon property held under a lease, the first term of which was drawing near its expiration, was, in their eyes, an insuperable objection. He could not obtain the required advance until a renewal of the lease had been secured, so. four years ago — two years in advance of the termination of the lease — he arranged terms for its extension. Like many others, he was deterred from entering upon an arbitration by the numerous examples of the almost invariable result in placing the rent fully as high as any likely to be insisted upon in a compromise, and also by the prospect that the expense of its generally costly proceedings might easily amount to $3,000, which, under the stipulations of the lease, was to be borne entirely by the lessee. Negotiation was resorted to, and the ground rent fixed at $3,200, a sum which, with the interest, etc., entirely absorbed the income of the property. Subsequently, the landowner, Sir David Macpherson, on the circumstances being repre- sented to him, realizing the impossibility of the tenant meeting the additional demand upon a heavily-encumbered property, consented to a reduction of the ground rent to $2,000 for a term of years, and the lessee can now realize some small return for his investment. This property, had the landlord invested his own money in it, would not, under present conditions,, yield $i,200 per year ground rent. In fact, he possesses adjoining property which does not pay three per cent, upon the purchase money. Yet, under the lease, his tenant is called upon to pay five per cent, upon a boom valuation. Apart altogether firom the evil of purely speculative values and n r- Bew'a^ r .\i LEASEHOLD ARBITRATIONS. >3 extravagant estimates by interested parties, which is likely to cure Itself in the nea*- future, the principle often adopted as a basis for awards — that the landlord should be allowed five per cent, on the Mormal value of the land during the period dealt with, whether the revenue received from the premises will justify it or not — is clearly a wrong and misleading one. It considers only one of the two parties, where both ought to be considered. In fact, should a preference be given to either, surely the most consideration should be extended to the lessee, by whose capital, enterprise and judgment the land has alone been made productive, rather than to the mere receiver of the wealth created by the industry of others. As has been ably pointed out in the statement of the tenant's claim in one notable award, the same error (of considering only the interests of one of the parties) would be committed in the tenant's favor, if his interests in the property were valued and he were allowed an interest rate upon this value, together with his expenses, etc., and the balance — if any — of the annual yield of the land and buildings combined, given to the landlord. The document goes on to say : "The co-relative rights of the landlord ami tenant should both be regarded together, and the amount the tenant should pay, and the amount the landlord should receive from the tenant, should be considered together. The relation between landlord and tenant, where the tenant owns ail the permanent improvements, in fixing such rents, is not that of mortgagor and mortgagee, so that the landlord should receive interest on • be value of his lands, as was done in the Walsh case. The parties, in addition to being landlord and tenant, are co-owners of the land and buildings, the tenant being sole owner of the building and having a leasehold interest in the land; and the landlord Iwing owner of the land, subject to the leasehold, and a case can readily l)e imagined where the tenant's buildings would exceed in value the landlord's ground. The tenant being in receipt of all the income from the united interests, the question is, what portion would he pay his co-owner, the landlord, for the ute of his share of the interest ? In justice between them, it should be a partition of the moneys in proportion to their respec- tive interest, risks, duties, etc. " Hence ths tenant submits that the true guide for the valuator to follow, is to ascertain what ought to be deducted from the ground, when suitably built upon and reasonably applied to good and yielding purposes, and to divide the net yield (that is, the remainder of the income after deducting outgoings, repairs, vacancies, depreciations, contingencies, management, etc.) between the landlord and tenant, in proportion to their interest, after allowing the tenant a per centage for the extra risk he is subject to. For example, consider the landlord's and tenant's interest standing as two to one in value, the annual income from the land and building is $i,ooo; the outgoings, depreciations, con- tingencies, lisk, trouble, vacancies and repairs, taxes, insurance, etc., $400; the land- lord, according to this, should receive from the tenant $400 out oi the $600 thus left. If the interests were equal in value, the $600 should be equally divided between them, and so on. The landlord's share is of the most certain and substantial kind and subjecli to no risk whatever. The tenant's share being destructible, is at all times subject to the \ u 1 M ^rl ■•.■ t. i6 LEASEHOLD ARUITRATIONS. clementH and nil xourccN of (lnn|{er. Even nx n(;nlnRt firo, the tenant U ohiifjed to assume one-third of the risk, as the insurance companies will not protect him heyoml sixty-six |)er cent, of the value of the huildin^s. Hence, in considerinc the rightsof the parties, a per centa|;e allowance shouhl he jjiven the tenant for the hatard his share is subject to, the landlord's share beini^ unatTccted by danger. It is a Tallacy to deal with future values, circumstances or conditions in fixing rentals for twtiit) -one years, as was done in the Walsh case. " A frccjiient argument in favor of liij,'licr {,'roun(l rents than can possibly be realized by the proj)erty, is that the buildings erected by the lessee are not suitable to the locality or furnished with the most modern appliances. As has been already urged, the best test of the suitability of the erections to the location and character of the lot, is the agreement which most leases contain as to the style and cost of the buildings to be erected. The argument is so forcibly and clearly stated in the document from which the foregoing (luotation has been made, that, even at the risk of repetition, another extiact, bearing upon this point, may well be given : , - , / I "The lease provides what sort of a building shall I* erected — or, in other words, shall be suitable — because the parties would not stipulate for iiuildings inappropriate to the ground upon which they are to be erected. When the tenant satisfied the require- ments of the lea^e as to the buildings, he satisfied the requirements .is to erections fitting fok the place they are in. A comparison of the lease with the buildings, shows how much better they are than the lenses require. • • * Suiely it cannot be said that a building is unsulte . to the pl.ice when it is up to the average of its neighborhood. If it were a better c^.ss, the landlord might complain that it was too expensive to pay ; if it were inferior to its surroundings, a complaint would be heard from the opposite source. If it is urged that the buildings are old, the answer is that at the time they were erected, they were considered according to the plans and customs of the times, and it cannot be expected that a tenant will tear down his buildings to erect more modern ones before the ordinary life of the building has been exhausted. It should not be expected that a tenant would do more with his buildings, in the way of alterations to follow the improvements of the times, than the ordinary owner, acting reasonably, would do." The demand that the lessee shall improve the property from time to time, in accordance with inflated ideas of the commercial require- ments of a modern progress which has often turned out to he entirely illusory and imaginary, comes with a specially bad grace from the ground landlord, whose calculations in fixing the amount of his exac- tions usually leave out of sight altogether the depreciation of build- ings under the best possible conditions. If the property is to continue productive, buildings must not only he repaired frequently, but in the end replaced. I'. ^ I - A / ,--T- LEASEHOLD ARBITRATIONS. «7 Mr. Henry Langley, in a pamphlet entitled "An Equitable Con- sideration of Renewable Leases," places the average life of a building at thirty-two years. On this point he says : "From very elaborate returns obtained thirteen years ago in the United Stotes (and the conditions are analagous here), the most durable portions of such buildings have a life of sixty-six years, while other portions have to lie renewed every six years; but, token altogether in their proper proportions, the average life is thirty-twu years; so that, in addition to ordinary rej)airs, a yearly sum bos to be laid by e(|ual to about a sixty-fifth part of the original cost wherewith to rcpl.ico the original building when worn out or be- come effete in style." The same writer also calls attention to another generally-ignored fact, which has a most important bearing upon the principle which many arbitrators seem to have taken for granted, that, whoever loses, ground landlords have a paramount right to receive, under any cir- cumstances, four or five per cent, upon the assumed value of the land. "Another consideration in connection with cnpiial," he says, "is the very marked decline in the rate of interest on investments during the last fifteen years, owing to the immense accumulation of' capital throughout the world and its rapid attraction to America. Fifteen years ago, eight and one-half to nine per cent, was no uncommon rate for loans in Toronto on goo.- i.^v Sir, — An evil has grown up amongst us known as leasehold tenure in lands which has become an instrument of spoliation and oppression only less in extent to that suffered by Irish tenants at the hands of their landlords, and the same remedy is required here that was found necessary to protect the Irish lessees from oppressive and unjust exactiotis, viz. , Government interference. At the initiation of a lease the land is rented at a rate which allows the tenant to put up buildings and receive a fair return for his risk and enterprise, and if the same equitable arrangement were adopted m renewing the lease there would be no ground for complaint. But in recent arbitrations a system has been adopted of hiring professional experts, sometimes to the number of 50 or 60, solicuors and counsel, who place excessive and unreasonable values on the land, ignoring entirely its earning power and inflicting burdensome costs, sometimes on both sides, but always on the lessee, in arriving at a decii,ton. Within the past ten years I do not know of an arbitration where expert testimony has been called whose award has been fair and just to the lessee. There are honorable exceptions amongst landlords who do not oppress their lessees ; a property on King Street East is now on the hands of the third generation of lessors and lessees at a rental fair to both parties, but renewals have been settled without arbitration by mutual arrangement. The majority of ground landlords act as did another family on King Street West. Twenty-five years ago they leased their land at $4 per foot. The lessees erected build- ings which were sometimes rented and often vacant, and never paid high interest. Four years ago, after a long and expensive arbitration, the rental for the next 21 years was fixed at $45 per foot per annum by two arbitrators, the representative of the lessee dissenting. This was $1,125 P^r annum for a store of 25 feet frontage, which produced a total rental of only $900 per annum. Under this award the lessee was compelled not only to give up all his earnings from his investment to satisfy his ground landlord, but he had to add $225 besides out of his other resources. The ground landlord, under this award, receives 400 per cent, per annum on his original investment ; tha lessee loses everything. Is this fair or equitable? The Legislature has made frequent changes in the law of landlord and tenant, but they only refer to trifling matters, as to protecting certain chattels from seizure. When it comes to seizing the whole building there is no redress, and the time has come when it must be granted. Toronto, May 17th. , ■ .. .T- ENOCH THOMPSON. .y •^. / .. li LEASEHOLD ARBITRATIONS. 21 ^ '' ■ -• [Toronto Globr, a^th May, 1894.] LEASEHOLD AWARDS. * : To the Editor of the Globe : ■' ' - Sir, — It would be difficult to find outside of criminal annals such barefaced robbery as is sometimes permitted under leasehold arbitration. Some twenty odd years ago an old and respected merchant leased a certain property on one of our business streets for 21 years, and covenanted to erect substantial brick buildings thereon. He was to insure them for the benefit of the lessor, and the lessor agreed to grant renewals every 21 years; the implied contract being that each should participate in any increase or deciease in value. For 21 years the lessee faithfully paid the full ground rent, taxes and repairs. The lessor received over 40 per cent, per annum on the original cost of the land all this time. The lessee for three years received 8 per cent, on his outlay ; for the remaining eighteen years his annual returns were from 5 to 7 per cent. Then the term expired, and the fatal arbitration commenced. Three arbitrators were appointed, and about fifty witnesses were called to inform the arbitrators what they already knew, or ought to have known, when they undertook to arbitrate. At the time of the arbitration the total revenue of the property was ^2,600, and ordinary justice would expect that this amount would be divided between the land and buildings according to their respective interests. If the ground rent had been increased only 100 per cent, it would still have left the lessee ij per cent, interest on his building, and a spark of hope for the future ; but this would not satisfy the ground landlord. He wanted an increase of 200 per cent., and actually secured 150 per cent. This absorbed more than the whole revenue of the property. The lessee in his old age is deprived of his only means of support, and his building, which cost over twenty thousand dollars, becomes the property of the lessor, pretty much as a burglar makes a haul ; he helps himself to everything in sight, without any troublesome legal formalities. There is this difference, however, between a burglar and this lessor. The latter is perfectly within his legal rights, nor does he belong to the class of society which supplies burglars. He probably thinks his lawyers, who worked up the case, should bear the odium. Nevertheless, the bald fact remains that a gross injustice has been done. An old man has been deprived of his property, and the lessor enjoys the spoils ; and every Sunday lawyers and clients may be seen and heard unctuously responding to the priest's "Thou shalt not steal. Lord, incline our hearts to keep this law." Legislation is required to prevent this kind of robbery. An s .,. was introduced two years ago providing that in all renewals of leases the actual revenue should be divided between land and buildings according to their respective values. This would afford the necessary protection, without unduly interfering with the landlord's rights. Why was this act withdrawn? - , Toronto, May 23. ^ ' J. ENOCH THOMPSON. [Toronto Globe, 39th May, 1894.] LEASEHOLDS. ff ■s ■ ■■. To the Editor of the Globe : Sir, — In a recent issue of your valuable paper I read a strong letter on leasehold awards, signed by Aid. Thompson. I regret to say that his letter does not put the case any too strongly. 22 LEASEHOLD AKUITKATIONS. ■ / , / i- V These bargains, made between landowners and building owners, were never intended, at their inception, to work out, as they do, such disastrous results for the building owner or lessee. I have in mind now a Yonge Street lot bought some years ago at $50 a foot. The owner said to a man of enterprise : — "You put up a good building on that property find I will give it to you at $4 a foot, ground rent, for twenty-one years, and I will then re- new the lease." The offer was accepted. The man of enterprise erected a building which cost about $4,000, or over twice as much as ihe cost of the land. The landowner got 8 per cent, for his investment, and the building owner was successful in having his building occupied by good tenants, and thus the bargain seemed a fair one to both parlies. Some few years ago this lease matured, and, after the usual arbitration proceedings, the rate was fixed at $23.50 per foot, about 47 per cent, on the original cost. The pro- prietor of the building is not so fortunate now, the position being that tiis tenants pay less rent now than they did ten years ago. After all these years he does not net 5 per cent, on his $4,000 building, which is actually worth less than when erected, while the land has, without any labor or outlay whatever on the part of its owner, increased a))out six-fold. Leaseholds will, no doubt, go on forever, but those who have to do with their renewal should use every effort to see that the interests o*" the unfortunate lessees are not altogether swallowed up by the lessors. This is only one instance of many I could refer to Toronto, May 28, EQUITY. ■ /:".. :-./■-■■ [Toronto Gi.oHE, jand Sept., 1894.J ■* ^^^ i ' > ARBITRATION REFORM. In any well-considered scheme of law reform, there must be provision for the simplification of the arbitration laws relating to land damages, ground rent renewals, expropriations and similar matters. As they are conducted now arbitrations are simply a sort of legal brigandage, by widen arbitrators, witnesses, experts and counsel pile up a long bill of costs at the expense, in most cases, of the municipal corporations throughout the Province. The people of Toronto, individually and collectively, have suffered more from the opportunities of piling up costs afforded by the arbitration laws than those of any other community. There are many large landed estates that hold land upon the ground -rent system, and the tenants are often coerced into paying rents beyond all proportion to the earning power of the land by the knowledge that in an arbitration they would have no chance against the superior resources of the land owner. The corporation of the city has always an arlntration on hand, sometimes three or four, and spends on an .iN^fcrage probably $7,000 or $8,000 a year in costs. Take the MacPherson arbitration now going on. For more than twenty days a County Judge, several of the ablest counsel of the city, a host of valuators, experts, practical builders, and all the officers of the couit have been engaged in determining the amount of damage done to some ravine land through which the city constiucted the Rosedale sewer several yeaisago. Two practical men, with power to settle the question ^vith()Ut calling witnesses or hearing counsel, could have done the work in half an hour. As matters staTul, the costs are piolyably $2,500 n rendv, and no man knows what the end will )ie. ■} .' f. .s ^ -T I LEASEHOLD AKaiTRATlONS. n , ! * . fe' % • (♦- fi- -,...^ The case is not an isolated one. The expenses are not abnormal. When the I'rittie Case stirred the people to a temporary interest in the subject, we pointed out the feasi- bility of the adoption of the French system, under which two valuators in all cases of the sort involved in the MacPherson arbitration act as permanent officers of the court, with power to determine withoat hearing evidenc what damages have been sustained, or what constitutes a reasonable ground rent. Why not give this a place in tl>e Ontario statutes ? Copy of a Bill introduced into the Ontario Legislature in 1892, read a first time and withdrawn. BILL. :.;-• ' . ^; An Act respecting the Renewal of Leases. Whereas it has been found that upon the renewal of leases, certain injustices are suffered by lessees. Now TilKKEKORE : Her Majesty by and with the advice and consent of the Legislative Assembly of tlic Province of Ontario, enacts as follows : L The Act may be cited as "An Act for the relief of Lessees." IL Where in any lease made prior to the passing of this Act, or hereafter of lands which shall have been vacant at the time of the making of such lease, and in which the lessee or his assignee or other person claiming or deriving title under the leasf, shall be entitled under the provisions of the said lease on the completion of the term fixed by the said lease to a renewal or renewals thereof, and the price or sum to be paid by the said lessee or his assignee, or by other persons claiming to be entitled to such renewal or renewals as rental during the period of such renewal or renewals, shall be left to be fixed by arbitration or award of any person or persons, or by the judgment or decree of any Court or Judge, no such award, judgment or decree shall be final and binding unless in fixing such price or sum to be so paid liy way of rental consideration shall have been given by the person or persons, Court or J udge so Kxing the same, to the increased value, if any, which the said lands may possess as a rent-producing property by reason of buildings having been erected or improvements made upon the said lands by the said lessee or his assignee or any person claiming through or under him, apart from the intrinsic value of the said buildings or im- provements, and such increased value shall be deducted from the value of the said lands in estimating the rental vahie of the said lands for the period of re- newal, and the sum to be paid by way of renewal then being fixed, shall be based on the value of the said lands after such deduction shall have been made. IIL Notwithstanding anything to the contrary contained in any lease of lands which shall have been vacant at the time of the making of the said lease, made prior lo the passing of this Act, or hereafter in which the lessee, his assignee, and other persons claiming under him, shall be liable to accept a renewal or renewals that do or may aggregate in length of time, a peiiod of twenty years or upwards, at a rental to be fixed by arbitration, award or otherwise, based on the value of tho land at the time of the renewal, the lessor or other owner or 1^* ^ 24 : - -y LEASEHOLD ARBITRATIONS. owners of the freehold in the said lands, shall 1x2 compellable at the option of the lessee, his assignee or other person or persons claiming under him, to sell and ' ' convey the said lands to such lessee or the person or persons claiming through him, at a price to be fixed in the same manner as the said lease shall provide for the fixing of the rental, payable during the tdm of renewal. IV. That no lessee under any lease of lands vacant at the time of the making of the said lease, or his assignee, nor any person claiming under him, by any . - ' of whom buildings shall have been erected upon the said lands or improvements made thereon, shaU be liable on any renewal or renewals of the said lease to pay a greater rental to the lessor than that which when deducted from the rent, which in the opinion of the arbitrators, the premises, land and building included would produce, will leave a sum for the benefit of the lessee, which shall bear as large a proportion to the value of the buildings and improvements made by the lessees thereon, as the amount to lie payable as rent to the lessor bears to the value of the lands. - • *