City of Toronto out almost $600K in unpaid rent from 2 businesses due to 'administrative oversight'

Two downtown Toronto businesses that lease prime real estate from the city's parking authority have operated rent-free for the last five years, thanks to what city staff are calling an "administrative oversight."

Most of back rent to be repaid after new leases on prime city real estate fell through the cracks for years

Mike Layton, a Toronto city councillor and member of the Toronto Parking Authority board, says the city 'will lose money' on repayment agreements with two businesses affected by an administrative oversight that resulted in almost $600,000 in unpaid rent, though he believes the majority of the back rent will be collected. (Keith Burgess/CBC)

Two downtown Toronto businesses that lease prime real estate from the city's parking agency have operated rent-free for the last five years, thanks to what city staff describe as an "administrative oversight." 

The two businesses operate on the ground floor of a multi-level city-run parking garage that takes up almost an entire city block in the heart of downtown Toronto on land owned by the Toronto Parking Authority (TPA) just steps from Yonge and Bloor Streets

The TPA admits that its leases with Elite Cleaners on Hayden Street and Tokyo Kitchen on Charles Street were supposed to be renewed in late 2017. For reasons that are still unclear, they never were. 

By the time staff realized what had happened, several years had passed, and the city was out about $600,000 in unpaid rent, according to a staff report to last week's meeting of the TPA. 

Commercial rents not TPA's main responsibility

According to TPA board member and city councillor Mike Layton, these kinds of commercial real estate deals were secondary to the main responsibilities of the parking authority. 

"Our core business is parking lots and on-street parking," he said, "and there was, I believe, some confusion that resulted in those businesses not getting a lease renewal."

The TPA has come under scrutiny by city politicians in recent years for questionable land deals that include overbidding by millions for a parcel of land near Finch Avenue West and Highway 400 in North York, and last year attempting to sell a piece of city property near Yonge Street and Eglinton Avenue to a developer without authorization.

The North York land deal was scuttled by a city auditor's report in 2017 that uncovered the TPA's inflated offer, a controversy that led to the firing of the TPA's board of directors later that year.

Businesses to pay most of back rent

Both Elite Cleaners, a drycleaning service, and Tokyo Kitchen, a Japanese bistro, have since come to an agreement with the TPA to pay most of the back rent. But those deals will cost the city tens of thousands of dollars, according to Layton.

"It will lose money here," he said. "[The city] identified the mistake about two years ago, but for the past two years they've been in negotiations with both retailers about what an appropriate repayment would be." 

Japanese restaurant Tokyo Kitchen has been located on the north side of a downtown Toronto parking garage since 1996. Due to an admitted oversight by the Toronto Parking Authority, which owns the lot, a lease that was supposed to be renewed in late 2017 slipped through the cracks, resulting in years of unpaid rent. (Mike Smee/CBC)

City and TPA staff say the repayment settlements are confidential. Neither Tokyo Kitchen's owner nor a representative of Elite Cleaners would speak on camera, but representatives for both told CBC Toronto their offers to the city are tens of thousands of dollars less than what the city figures it lost — and was demanding they pay.

The TPA approved the settlements at its meeting Friday, but it will likely be months before city council puts its final stamp on them and new leases with the two businesses are finally hammered out.

Leases slipped through cracks, report suggests

The report presented at last Friday's TPA meeting, authored by TPA staff and the city's legal services department, suggests the two leases slipped through the cracks as responsibility for all municipal leases was being centralized under the city's Corporate Real Estate Management (CREM) banner, a process that began in January 2018 and is still underway, according to the TPA.

The staff report simply ascribes the oversight to "inadvertence."

Elite Cleaners on Hayden Street has been operating on the premises since 2007. Problems arose when the Toronto Parking Authority neglected to renew the lease for the business in 2017. (Mike Smee/CBC)

Tokyo Kitchen has leased its Charles Street property on the north side of parking lot since 1996, and Elite Cleaners, which occupies premises on the Hayden Street side of the lot, has leased there since 2007. 

In 2016, both businesses were told they'd have to leave the location temporarily, as it was being renovated. But when they moved back in late 2017, no new leases were offered. Both businesses said they'd been trying to get the city to negotiate new leases over the years, with no success. 

The city says it has been negotiating with the businesses since at least 2021. According to TPA staff, once details of the repayment of arrears are finalized, new leases will be negotiated.

TPA says it regrets 'administrative oversight' 

It wasn't until March 2021 that the TPA was told by CREM staff that the two leases had slipped through the cracks. It ordered the two businesses to pay up for the years they'd been operating rent free.

At that point, the report says, Tokyo Kitchen owed over $400,000, and Elite owed about $193,000. It's unclear how much those figures have jumped in the past year, but both companies continue to operate without a rental agreement in place.

The lease proposals that fell through the cracks would have seen Elite pay up to $60 a square foot, and Tokyo Kitchen, which has a much larger space, up to $97 a square foot.

The TPA said in a statement to CBC Toronto last week that it "recognizes and regrets the administrative oversight that took place. This issue has been addressed and TPA is reporting to the board on details of a proposed settlement on the arrears owing." 

According to the statement, the "details of the proposed agreements are confidential."