Court File and Parties
COURT FILE NO.: CV-19-05338-00ES
DATE: 20220712
ONTARIO
SUPERIOR COURT OF JUSTICE
In the Matter of the Estate of Rena Eisenstein, Deceased
MARILYN EISENSTEIN Applicant
CELINE JOEL and ALLAN JOEL Respondents
Counsel: Garrett Horrocks, for David A.S. Mills, Estate Trustee During Litigation (Moving Party) Andrea McEwan, for Applicant Nancy J. Tourgis, for the Respondents (Responding Party)
HEARD: June 30, 2022
REASONS FOR DECISION
(mOTIOn FOR DIRECTIONS RE: SALE OF PROPERTY)
Osborne j.
Background
[1] This is a motion by the Estate Trustee During Litigation (“ETDL”) of the Estate of Rena Eisenstein, for directions regarding the sale of a property located at 897 Queen St. W., Toronto, ON (the “Property”).
[2] Rena Eisenstein died on January 22, 2018. The parties to this proceeding are the Applicant, Rena’s daughter Marilyn, and the Respondents Celine Joel and Allan Joel. Celine is also Rena’s daughter, and Allan is Celine’s husband. Marilyn and Celine are the equal residual beneficiaries of Rena’s estate. I refer to the parties by their first names, given the commonality of surname.
[3] The ETDL was appointed by order of Justice Conway dated February 20, 2020, on the consent of the parties. The ETDL has no beneficial interest in the estate.
[4] A sale of the Property by the ETDL is pending, conditional on the consent of the parties or order of this Court, until August 15, 2022. The ETDL takes the position that the terms of the sale are appropriate, the purchase price represents the fair market value of the Property, and that the sale of the Property pursuant to the agreement now pending would be in the best interests of the Estate.
[5] The position of the ETDL and the sale are supported by the Applicant, Marilyn. The sale is opposed by Celine, with the result that the ETDL brings this motion today.
Disposition and Reasons
[6] For the reasons that follow, I am of the view that the sale of the Property can and should proceed as recommended by the ETDL.
The Value of the Property and the Pending Agreement
[7] When the ETDL was appointed in February 2020, Rena’s estate had three significant assets. The first was a residential property located at 2 Blue Forest Dr., Toronto, ON. The other two were commercial properties. The first, located at 850 Bathurst Street, Toronto, is the subject of an agreement of purchase and sale and is scheduled to close on July 18, 2022. The second is the Property that is the subject of this motion.
[8] It is common ground that the Property is in poor condition and needs significant repairs and improvements at a minimum if the existing structure is not demolished and replaced in its entirety. As further discussed below, there is a recent outstanding work order issued by the City of Toronto directing certain structural improvements.
[9] The ETDL and Marilyn on the one hand, and Celine and Allan on the other hand, have divergent views as to the value of the Property today.
[10] In April 2022, the ETDL received an offer to purchase the Property, and following some negotiation, a purchase price of $4,010,000 was agreed. That has been reduced by further negotiation and agreement between the prospective purchaser and the ETDL by 5% to $3,809,500 as a result of an outstanding City of Toronto work order and certain repairs to be made as a result. The ETDL recommends that the transaction be completed at the revised purchase price and seeks the direction of the Court.
[11] As a result of the disagreement between Marilyn and Celine as to whether the transaction should be completed at this price, the ETDL negotiated with the purchaser an additional term which provides that the sale must be confirmed to be proceeding, whether pursuant to the consent of the beneficiaries or by court order, no later than August 15, 2022, failing which the offer is void.
[12] It is as against this backdrop that today’s motion proceeds. It is suggested by all parties that there is little guidance in the jurisprudence as to whether and on what basis this Court ought to direct that a pending sale be completed. In more typical circumstances, it is suggested, the asset would be sold and the dispute, if any, about whether the sale was appropriate would be determined in the course of the accounting for the estate.
[13] Here, the Trustee suggests, and none of the parties disagrees, that given the term of the pending offer providing for completion of the sale if the Court so directs, this motion represents a manner of proceeding that is both fair to all parties and is the most efficient and cost‑effective course of action, thereby minimizing expenses and maximizing the value of the estate for the benefit of all beneficiaries.
[14] I observe that this Court has previously heard and determined motions for directions brought by an ETDL regarding a pending sale of an asset in respect of which the beneficiaries disagreed (see, for example, Brass v. Berkley Estate et al, 2020 ONSC 6615).
[15] A court will generally not interfere with the management of an estate or provide advice on a proposed sale. However, once a decision has been made, the ETDL can apply for approval of the decision so that subsequent litigation may be avoided. If the ETDL has exercised discretionary power, the court will generally not interfere with that decision if the ETDL has acted bona fide and fairly and will not interject its own opinion (McKay Estate v Love, (1991), 1992 7508 (ON SC), 6 OR (3d) 511 at para 7).
[16] In the circumstances of this case, I am satisfied that it is appropriate for me to determine the issue now. All parties argued the motion and they seek a determination now; none submitted that the issue should be deferred and addressed as part of an accounting for the estate after the sale had closed assuming the ETDL proceeded.
The Order of Justice Conway dated February 20, 2020 and the Power to Sell the Property
[17] By order dated February 20, 2020 (the “Order”), Justice Conway granted various relief. That Order was made on the consent of all parties.
[18] The Order appointed the ETDL and, as is usual, required him to act at all times in the best interest of the beneficiaries of the Estate and in good faith. The Order also specifically addressed the sale of the two commercial properties in Rena’s estate - the Bathurst Street property and this Property.
[19] The Order directed the ETDL to retain Celine as the real estate agent to list those two properties and provided that she was entitled to a listing portion of the commission for each. Celine is a realtor.
[20] The Order also directed Celine to take immediate steps to market and list both properties for sale, with authority in the ETDL to renew or extend any such listings. Should they not be renewed or extended, the beneficiaries were at liberty to make suggestions as to another agent, but the ETDL had the sole discretion to choose whichever agent he deemed appropriate.
[21] The Order further provided that if Celine failed to sell the properties within 130 calendar days of the listing, the ETDL had the authority to immediately terminate the listing and retain whomever he deemed appropriate for the sale/transfer of the properties.
[22] Importantly, the Order provided that the ETDL was to confer with the beneficiaries, through counsel, as to the sale of the properties prior to the sale or transfer, but he was not required to obtain the consent of any party for the sales and/or transfers. The ETDL was entitled to immediate vacant possession of the properties.
[23] In short, there is no issue before me today that the ETDL has the power to sell the Property, with or without the consent of the beneficiaries, and this is specifically conceded by Celine.
[24] Celine’s position is not that the ETDL lacks the power to sell the Property. Rather, she maintains that it would be improper for the ETDL to exercise that power and complete the agreement that is pending today, since the ETDL has not undertaken all appropriate steps to fulfil his general duty of acting in the best interest of the Estate and ensuring that any disposition of this Property is completed at fair market value. Celine maintains that the fair market value of the Property materially exceeds the sale price in the pending agreement.
The Value of the Property and Events Prior to the ETDL’s Efforts to Sell the Property
[25] The value of the Property, as at Rena’s date of death, was estimated at $2,775,000 according to a valuation obtained by the ETDL. The valuation was prepared by a reputable appraisal firm, Lebow, Hicks Appraisal, Inc. However, that valuation was conducted in 2018 and is approximately four years old.
[26] Pursuant to the Order of Justice Conway, Celine acted as the listing agent for the Property. It is common ground that Celine prepared a number of listing agreements with revisions and extensions thereto, all of which were approved by the ETDL.
[27] From March 2020 (i.e., the month following the date of the Order of Justice Conway) until September 2020, the Property was offered for sale by Celine at a price of $15,800,000. No offers were received.
[28] The 130-day period provided for in the Order expired on June 29, 2020. However, with the consent of both Marilyn and the ETDL, Celine continued as the listing agent for a significant period of time thereafter.
[29] A further listing agreement, circulated by Celine in March 2021, reduced the list price of the Property to $9 million. Still, no offers were received.
[30] Throughout this period and on several occasions, the ETDL advised Celine that based on discussions with other realtors and brokers, the fair market value of the Property appeared to be materially lower and in the range of $4 - 4.5 million.
[31] The evidence of the ETDL on this motion was to the effect that in May 2021, a realtor acting on behalf of a prospective purchaser opined that the value was approximately $4.5 million. Independent inquiries performed by the ETDL have suggested to him that the fair market value was perhaps approximately $4 million, but that in any event, the value was materially below the listing prices set by Celine.
[32] After having listed the Property since March 2020, Celine finally received an offer to purchase in February 2021 in the amount of $4.2 million and presented it to the ETDL. On Celine’s recommendation, the ETDL signed back the offer at a revised purchase price of over double the amount originally offered: $9 million. No counteroffer was received, and the prospective purchaser took no further steps to pursue a purchase.
[33] When this potential sale fell through, the ETDL wrote to both beneficiaries in May 2021, to express his concern that in the period of over one year since Celine had been marketing the Property, only one offer had been received and Celine’s view of the value seemed unreasonably high, as compared to both the (only) offer received and the responses to inquiries of the ETDL received by him.
[34] Celine maintained that delays caused by the ETDL in signing back the offer had contributed to the collapse of that transaction. The evidence of the ETDL on this motion, however, is that he discussed with the agent for the offeror why the offeror did not pursue the Property, and the agent confirmed that it was exclusively the result of the sign-back at such a significantly higher amount.
[35] Celine also maintained through this period that the brokers and agents with whom the ETDL had consulted were not sufficiently familiar with the area in and around the Property, such that their estimates of value were inaccurate. She continued to maintain that the value of the Property was somewhere between seven and $15 million.
[36] Ultimately, the parties agreed that Celine would continue to act as listing agent until November 28, 2021. This agreement was sanctioned by the Court in a further court order issued by Justice Conway on May 28, 2021 (the “Second Order”).
[37] That Second Order also proceeded on the consent of all parties. It provided that Celine would step down as the commercial real estate agent if [this Property and the Bathurst Street property] had not sold, or if a conditional sale had not been achieved, by November 28, 2021, and the ETDL would retain a new commercial real estate agent to sell both commercial properties.
[38] The Second Order also provided that the ETDL may seek the advice and direction of the Court on any issue related to the sale of the properties, just as it now does.
The ETDL Assumes Role of Selling the Property Leading to the Sale
[39] Neither commercial property was sold by November 28, 2021, the date in the Second Order. Celine requested of the ETDL that her term as listing agent be extended again. Ultimately, after discussing the request with Marilyn, the ETDL declined and assumed the role of marketing the Property.
[40] The ETDL retained an experienced commercial real estate broker, CBRE, after seeking recommendations from both residual beneficiaries and receiving none. CBRE initially proposed a list price of $4.999 million. The Property was listed on April 12, 2022.
[41] Two offers were received; one for $2.9 million and the other for $4 million. The ETDL informed both beneficiaries of his intention to negotiate the higher offer but that if he could not persuade the potential purchaser to increase the purchase price, he intended to accept the higher offer anyway. There was no objection from Marilyn, but Celine took the position that the ETDL had “mishandled and mismanaged” the listing and that the fair market value of the Property far exceeded the proposed purchase price in either offer.
[42] The potential purchaser raised his offer to $4,010,000. However, further investigations by that prospective purchaser led to the discovery of a work order issued by the City of Toronto. As a result, the purchaser reduced the offer by 5%, to $3,809,500. In the circumstances, the ETDL remained of the view that the offer was fair and reasonable, in the best interests of the estate, and should be accepted.
[43] Given the issues raised by Celine, however, the ETDL negotiated an additional term of the agreement as noted above. It provided that the transaction would be conditional until August 15, 2022, on receipt of consent of both beneficiaries or Court approval, failing which the agreement would be void.
The Powers of the Trustee
[44] It is common ground among the parties to this motion that the ETDL has the power to sell the Property, with or without the consent of the beneficiaries. Both beneficiaries agree that the Property should be sold, but as noted, Celine does not approve of the purchase price in the pending agreement. The ETDL accordingly brings this motion for directions as to whether the sale of the Property should proceed.
The Exercise of the Power and the Proposed Sale
[45] As observed by the court in Ontario (Attorney General) v. Ballard Estate, (1994) 1994 7305 (ON SC), 20 O.R. (3d) 189 at para. 50, the traditional method of arriving at fair market value (of an asset in an estate) is to expose the asset for sale in the marketplace.
[46] The Property has been listed almost continuously since March 2020. Celine was the listing agent pursuant to the consent Order of Justice Conway from that date through to November 28, 2021. Even though that Order authorized Celine to act as listing agent for a period of 130 days, her role was extended on the consent of the parties and by the Second Order of Justice Conway made May 28, 2021, such that Celine was the listing agent for approximately 1.5 years.
[47] During that entire period, only one offer was received. I note that, at a purchase price proposed a $4.2 million, it was within the range of the current offer and the range suggested by the inquiries made by ETDL.
[48] When the ETDL took over responsibility of listing the Property, it engaged CBRE, a reputable and experienced commercial brokerage firm. CBRE listed the Property for sale, marketed the Property, held an open house, and conducted an offer process. However, only two offers were received.
[49] One offer, which is the subject of the conditional agreement now pending, is in the same range and the other offer was materially lower.
[50] In short, no offer has been received for the Property at any time since Celine first listed at in March 2020 until the present, at any price materially above the offer now pending.
[51] I have considered the arguments raised by Celine, and the four points on which she principally relies.
[52] First, Celine argues that much of the period during which the Property has been listed has been the period during which the Covid 19 pandemic has been ongoing, with the result that the asset has not been exposed to the market in a traditional sense, or at least to a market that is acting rationally and not in extraordinary circumstances.
[53] Second, Celine argues that the CBRE listing materially understated the total area of the building and/or the lot on the Property, or at a minimum stated the total area in a confusing way, such that the listing cannot be relied upon by the ETDL as being an accurate exposure of the asset to the marketplace.
[54] Third, Celine argues that there has been no appraisal of the property for almost four years since the date of death appraisal referred to above.
[55] Fourth, Celine argues that even if the purchase price in the pending agreement initially agreed to at $4,010,000 were reasonable, the arbitrary reduction of 5% in respect of the work order constitutes an unreasonable reduction in the purchase price.
[56] I am satisfied that the Property has been exposed to the marketplace. Without question, the Covid 19 pandemic has caused disruptions to the market and indeed to society generally. I accept that this has increased the challenges of showing available properties to prospective purchasers. There is no evidence on the Record, however, of valuations or prices of commercial properties during this period (however the period of the Covid 19 pandemic might be defined) at all, and therefore no evidence as to whether those prices have increased or decreased, and if so by what proportion or amount.
[57] The MPAC valuation of the Property for tax purposes is not in and of itself determinative of what the market may determine the value of the Property to be.
[58] I am satisfied that the CBRE listing described the Property with sufficient accuracy and that there is no evidence that any purchaser or potential purchaser of this commercial property was misled or confused by the manner in which the total area of the land or building was described.
[59] The ETDL was cross-examined on this issue, and undertakings were given. The responses to those undertakings were part of the Record. The evidence of the ETDL was to the effect that the listing agent confirmed that the total area referred to was describing the lot area (as opposed to the area of the building interior). The building area was calculated based on the total square footage of the three floors in the aggregate, subject to measurement by the broker.
[60] The value of the Property reflected in the proposed offer is fair. The date of death valuation of the Property estimated it at $2,775,000. A value of approximately $4 million is supported by two of the three offers for the Property (and there have been only three total) since March 2020, as well as the inquiries of the ETDL and the estimates of value of the commercial real estate broker the ETDL retained, CBRE.
[61] There is no evidence in the Record to support a finding that the value of the Property is anywhere close to the $9 million (Celine’s reduced listing price) let alone $15 million (Celine’s initial recommendation for listing price) figures proposed by Celine. During the period in which she was the listing agent, she was unable to generate any offer remotely in that range, even if it were conditional on financing or had other material closing risk, let alone an unconditional offer.
[62] As argued by Marilyn, it does not appear that there is any evidence that Celine prepared any marketing materials, held an open house, listed the property on MLS, or ran an offer process (contrary to the steps undertaken by CBRE). Yet she is the beneficiary who, having had control of the sales and listing process for a considerable period of time (approximately 1.5 years), still opposes a sale today.
[63] Moreover, in this case, Rena died in January 2018, almost 4.5 years ago. Notwithstanding that her will named Marilyn and Celine as co-trustees (as well as equal residual beneficiaries), Marilyn commenced this Application two years after her mother’s death to have an independent estate trustee appointed since no steps to administer the estate had been undertaken. Even today, almost 2.5 years after the appointment of the ETDL (on consent) and following two separate motions relating to the sales process resulting in orders, both of which were also on consent, no distributions from the estate have been made.
[64] A sale and the subsequent distribution that it would permit is appropriate and in the best interest of the estate at this time. In my view, it is not in the best interest of the beneficiaries collectively to drag out this matter further, in the hope that property values may increase some unknown time in the future.
[65] The ETDL who brings this motion has no financial interest in the estate but does have the acknowledged duty to act in the best interest of the estate and the beneficiaries. Based on all of the above, he believes he has done that.
[66] Moreover, the relief sought here is effectively what occurred in the McKay case referred to above, where the Court considered a transaction that had already been negotiated and agreed, but in respect of which completion was conditional on court approval.
[67] I see no basis here to substitute the opinion of the Court for the recommendation of the ETDL, who has acted with bona fides and fairly.
[68] The ETDL has, as is conceded by all parties, the power to sell the Property with or without the consent of the beneficiaries pursuant to the first Order of Justice Conway. He also has the power to seek the advice and direction of this Court generally and specifically as provided for in the Second Order.
[69] The proposed sale is not unfair. In my view, the analysis should be the same whether the ETDL is seeking the advice and direction of the Court now to close the transaction, or whether a beneficiary is challenging the reasonableness of the exercise of that power by the trustee subsequently, in the course of a proceeding to approve the accounting of an estate.
[70] As noted above, proceeding now as the ETDL has done seems more efficient, and provides more certainty to the parties and provides that certainty earlier in time.
[71] As set out by the Court in McKay, the ETDL must satisfy the Court that:
(a) it has the power to sell the property;
(b) it has acted in good faith in its efforts to sell the property; and
(c) it has acted fairly between the affected beneficiaries and in their best interests.
[72] While the basis for the powers of a trustee are different from those of a court-appointed receiver, the circumstances in which they act, and the duties they owe, are similar in that in each case, the party seeking approval of the sale of an asset is seeking that approval as a party without an interest in the estate, and for the benefit of other parties (i.e., beneficiaries or creditors) for whom the party seeking the sale has a duty to act fairly, impartially and in the best interests of those parties.
[73] Accordingly, the factors applicable to a sale approval in a court-appointed receivership context provide analogous guidance here, and they align with the duties of a trustee: see Royal Bank of Canada v Soundair Corp., 1991 2727 (ONCA) at para. 46.
[74] Has the party seeking approval of the sale established that it has:
(a) made a sufficient effort to get the best price and not acted improvidently;
(b) acted in the interests of all stakeholders (beneficiaries or creditors);
(c) considered the efficacy and integrity of the process by which offers were obtained; and
(d) considered whether there has been unfairness in the working out of the process.
[75] I observe that the Court of Appeal in Soundair noted that the court should exercise extreme caution before interfering with the process adopted by a receiver to sell an asset. This is consistent with the approach noted by the court in McKay when reviewing the opinion and recommendation of a trustee.
[76] As noted, the ETDL here clearly has the power to sell the asset. I am satisfied that he has acted in the best interests of both beneficiaries, Marilyn and Celine, honestly and in good faith.
[77] The ETDL monitored the process for the significant period of time discussed above when Celine was the listing broker. That period was extended with the consent of the ETDL and the other beneficiary, Marilyn. The Property still did not sell. The ETDL then retained CBRE who conducted a robust process and yielded only two offers, the superior offer of which is the one sought to be approved here.
[78] No offers, whether conditional or not, at a materially higher range have ever been received. Given the length of time during which the Property has been exposed to the market, I am satisfied that obtaining another appraisal, which is effectively an opinion as to the estimate of what value the market might generate, or a proxy for an actual market transaction, is not required here.
[79] I note that CBRE did not recommend that such a valuation be conducted. Celine did not see fit to obtain one during the lengthy period of time during which she was the listing agent.
[80] Here, the offer is unconditional. There is no evidence that the purchaser is a related party to any affected party (the ETDL or either beneficiary) or that the transaction is non-arm’s length. The sale agreement was not negotiated privately; the Property was exposed openly to the market for a significant period of time. In my view an updated appraisal is not necessary.
[81] If this sale is not approved, it appears that further funds will be required to be expended to comply with the outstanding work order. The 5% reduction to the purchase price is a negotiated reduction and not a mathematical calculation, nor is it represented to be.
[82] There is support for that amount in the estimate of work to be done by an external professional. The ETDL obtained the report of an independent engineer who estimated the value of the repairs to be undertaken to restore the structure. It is not particularly detailed, but there is no evidence put forward by Celine to suggest that the value of the work required to bring the Property and the compliance is materially less. I am satisfied that the reduction of 5% is reasonable. It maintains the certainty of the transaction closing now without the expenditure of further funds. While, hopefully, the Covid 19 pandemic is waning, there is no evidence that the commercial real estate market in the vicinity around the Property is or is expected to materially increase in the near future.
[83] For all the reasons set out above, I am satisfied that the process by which the offers were obtained was fair and conducted by the ETDL with integrity.
[84] I am sensitive to the concerns of Celine that it is possible that the Property might be sold for a higher price in the future. However, there is no evidence that such will be the case, and the benefit to the beneficiaries of that possibility, with all of its attendant additional costs and risks, is outweighed by the benefit to those same beneficiaries of completing this transaction now which is unconditional (save for consent or court approval).
[85] For all of the above reasons, I approve the proposed sale transaction and direct the ETDL to complete the pending agreement.
Contents of the Property
[86] Located in the building on the Property are a considerable amount of inventory, lighting fixtures, construction supplies as well as certain items said to be personal effects of Rena or mementos belonging to the Estate. In the event that the sale is approved, as I have now determined it should be, Celine wants these items or wants an opportunity to dispose of them, maintaining that they may have some commercial value.
[87] Celine and Allan have advised the ETDL that they (or Allan) have had discussions with prospective purchasers for some of the contents, but they have provided to the ETDL no particulars or contact information for any prospective purchasers.
[88] Marilyn asserts no claim to these items and does not object to Celine either having them, or having the opportunity to sell them, but does not wish to be responsible for any additional costs incurred in accommodating Celine’s request. She also does not wish to be prejudiced by the Estate incurring any disposition costs and her residual beneficial interest being reduced as a result.
[89] I am of the view that the position of each of the residual beneficiaries is reasonable. Celine shall have the opportunity between the date of this order and the closing of the sale transaction to remove or dispose of the contents at her own expense and for her own benefit, and in a manner such that the ETDL is in a position to deliver vacant possession in accordance with the agreement of purchase and sale or otherwise as may be negotiated.
[90] The ETDL needs to know with certainty whether he will be able to deliver vacant possession by the date agreed. Accordingly, Celine shall ensure that all contents are removed no later than 90 days prior to closing of the transaction. If the contents are not removed by that date, the ETDL shall be at liberty to dispose of them in order that the sale of the Property can proceed. If there are proceeds of the sale of the contents when sold by the ETDL, such net proceeds shall be the property of the Estate.
Costs
[91] Each party filed a bill of costs. The ETDL seeks substantial indemnity costs of $12,216. Marilyn seeks costs on a partial indemnity scale of $9,633.25 or costs on a substantial indemnity scale of $14,351. Celine also seeks her costs, in the substantial indemnity amount of $14,385.46 or the partial indemnity amount of $9,539.46.
[92] Marilyn submits that any costs paid by the Estate are, effectively, payable by her as to 50% given that she and Celine are equal residual beneficiaries of the estate, and that this motion ought not to have been necessary.
[93] There is no reason the ETDL should not be fully indemnified for the costs of this motion, brought for the benefit of the Estate and its two residual beneficiaries. Those costs of $12,216 are reasonable in the circumstances and shall be paid by the Estate. Marilyn supported the motion by the ETDL, filed affidavit evidence and a factum and counsel participated in oral argument. Marilyn is entitled to costs in the amount of $7,500, to be paid by Celine either directly or if not paid at the time of a distribution, to be deducted from Celine’s share by the ETDL and added to Marilyn’s share. All amounts are inclusive of taxes and disbursements.
Osborne J.
Released: July 12, 2022
COURT FILE NO.: CV-19-05338-00ES
DATE: 20220712
ONTARIO
SUPERIOR COURT OF JUSTICE
In the Matter of the Estate of Rena Einstein, Deceased
BETWEEN:
MARILYN EISENSTEIN Applicant
- and -
CELINE JOEL and ALLAN JOEL Respondents
REASONS FOR DECISION
Osborne J.
Released: July 12, 2022