There are no rules for selling government real estate in Quebec

A condo complex at the site of the former Montreal Children’s Hospital at René-Lévesque Blvd. and Atwater Ave. An examination by the Montreal Gazette found no market appraisal of the Children’s site before it was put up for sale. Photo by Dave Sidaway /Montreal Gazette files

Quebec regulates the awarding of public contracts, but it imposes no laws, no rules and no standards for the sale of government-owned real estate, an examination by the Montreal Gazette has found.

While corruption scandals and the Charbonneau Commission of inquiry into the construction industry prompted the Quebec government to tighten public contract awarding rules a decade ago, there never have been requirements for transparency and competitive bidding when provincial departments and municipalities do business with the private sector to sell public property.

Unlike Ontario, Quebec doesn’t even have directives that oblige a ministry to obtain fair market value or to offer first dibs to other public bodies before government real estate is sold to private hands, the examination found.

The Gazette discovered the absence of a legislative or regulatory framework for the disposal of public buildings while examining the sale of the former Montreal Children’s Hospital site.

As reported this week, the McGill University Health Centre sold the downtown site for $25 million in 2016 after reportedly receiving other offers of $30 million to $43 million.

The buyer sold the air rights on part of the site to another developer for $35 million the day before signing the $25-million purchase from the MUHC at the notary’s office. The buyer, 9333-8580 Québec Inc., later sold more air rights to the developer for another $9 million to build on another part of the site.

Sarto Blouin, the businessman who bought the Children’s through 9333-8580 Québec Inc., said he and his partner’s $25-million offer was the most attractive because it was unconditional, while the competing offers were contingent on obtaining financing or a zoning change.

He also said he paid for decontamination in the deal for air rights. Blouin said he received estimates of $6 million to $10 million to decontaminate the property, but finally paid $4.1 million.

The MUHC said in a statement that it had sold the Children’s in a “formal public tender process.” The MUHC also called it a “rigorous tendering and analysis process.”

“This process was government-led and complied with all standards and procedures used to govern this procedure,” it said.

Tenders not required to sell property

Quebec’s Act Respecting Contracting by Public Bodies regulates the “public call for tenders” mechanism. The law requires the call for tenders to be published in the province’s electronic tendering system, the Système électronique d’appel d’offres du gouvernement du Québec (SEAO). As well, the bidders’ names and their prices are supposed to be rendered public in the SEAO after the bid envelopes are opened.

But the MUHC’s claim that a rigorous “public call for tenders” took place appears to fall into a legal void because the Act applies explicitly only to government contracts to purchase goods and services. It doesn’t mention government contracts to sell.

No call for tenders was posted in the SEAO for the Children’s, though the Société québécoise des infrastructures (SQI), the provincial department that organized the sale, published several calls for tenders there to sell other government properties at the time of the Children’s sale.

In fact, the Gazette’s examination found that while the SQI regularly publishes public calls for tenders to sell government property in the SEAO, it rarely discloses bidders’ names and prices after the bids are opened.

The SQI’s use of the province’s official electronic tendering system to sell government property is optional, the Quebec Health Ministry confirmed.

In the case of the Children’s, the SQI published a call for tenders in the SEAO to hire a real estate broker to sell the property. The broker placed an ad in two Montreal daily newspapers to announce the Children’s was for sale. The ad said “Public Call for Tenders,” but also said potential bidders had to sign a confidentiality agreement.

Children's Hospital ad in the Montreal Gazette — Broker CBRE placed an ad in two Montreal daily newspapers offering the Children’s for sale in May 2015.

Other bids kept secret

The MUHC and the SQI have never disclosed the prices that were offered for the Children’s or who made the offers.

The MUHC, the Health Ministry and the SQI refused a Gazette access-to-information request this year to obtain the names of the bidders and the prices they offered for the Children’s and for a second former hospital, the Montreal Chest Institute. The SQI claims it’s confidential information. The Gazette has filed a notice to appeal.

The MUHC referred the Gazette’s questions to the SQI.

The SQI recently hired the same broker that helped sell the Children’s, CBRE, to sell another building belonging to the Health Ministry in Montreal at 90 de la Gauchetière St. E. The public call for tenders notice for the building in the SEAO says CBRE is requesting bids on behalf of the SQI. And despite being in the SEAO, the notice states that potential bidders are required to sign a confidentiality agreement and that “purchase proposals will not be opened publicly.”

“There is no formal rule,” ministry spokesperson Noémie Vanheuverzwijn said in a written response to the Gazette confirming that a public call for tenders is optional to sell a building belonging to the ministry. “However, the Health Ministry makes sure to apply the best practices.”

A sale notice “is generally” published in a daily newspaper, in the SEAO and in real-estate industry publications, she said. The notice is also sent to the list of contacts of the real estate broker who may be hired to assist the government with the sale, she said.

Despite the absence of rules to govern the process, the Health Ministry “ensures that it demonstrates sound management of public funds,” Vanheuverzwijn said.

The only legal requirement to sell surplus Health Ministry buildings, such as a vacant hospital, is for the ministry and the Treasury Board to OK the decision to sell. As well, the purchaser’s name and the sale price are rendered public.

How Quebec sells surplus property

The premise in the Quebec Civil Code is that public property serving a public use cannot be sold. A government body has to remove the public vocation, declaring it surplus property, before it can sell it.

It’s the same approach at the municipal level. The Quebec Municipal Affairs Department said a municipality may sell its surplus real estate through direct sale to a buyer, by public auction or through public tenders.

The clerk or treasurer of a municipality must publish a monthly notice of municipal property worth more than $10,000 that was sold and include the buyer’s name and the price.

However, Quebec has a law governing the sale of certain municipal properties for industrial and research purposes.

The Quebec government offered the Children’s site to other public bodies, including the city of Montreal, before offering it on the market. The other public bodies turned it down.

However, the offer of first dibs to public bodies is optional in Quebec.

As well, the Gazette’s examination found no market appraisal of the Children’s before it was put up for sale. The site had a municipal assessment for tax purposes of $49 million. A market value appraisal would have taken into account the site’s development potential and any contamination.

Ontario has more strict requirements

By comparison, Ontario requires surplus provincial property to be offered to other public bodies before putting it on the market. In fact, since 2013, Ontario includes not-for-profit corporations “that provide a public benefit” on the list of public bodies to whom surplus government real estate must be offered for purchase at market value before it’s placed for sale on the open market.

As well, Infrastructure Ontario, the equivalent of the SQI, said its mandate requires that properties be sold at fair value, whether through a direct sale to a public entity or on the open market. An assessment of fair value is undertaken for each property prior to moving forward with a sale.

However, Ontario doesn’t require a public call for tenders to sell government property.

‘Quite troubling’

Housing activist Éric Michaud, co-ordinator of Habiter Ville-Marie, one of the groups that objected to selling the Children’s for private development, said he’s shocked to learn that Quebec has no legislation or regulations controlling the sale of public property.

“I am very surprised by this and I find it quite troubling because we see all the mechanisms that frame the granting of public contracts, and there’s nothing for the sale of public buildings,” he said.

The value of government contracts awarded through a public call for tenders is often lower than the prices of buildings being sold by the government without regulation, Michaud said.

“Often, government buildings are of great heritage value or financial value because they’re in strategic locations. I find it incredible that there isn’t more regulation.”

Broker better than SEAO, buyer says

Meanwhile, the buyer of the Children’s said he wouldn’t object if the government sold all real estate through the SEAO.

“It doesn’t bother me,” Blouin said. “If it enables getting a better price.”

But the SEAO is unlikely to elicit better prices, he added. The SEAO is more laborious than working with a real estate broker, Blouin said.

“If I have to look on the SEAO, I will never make an offer on it. And (the sale notice) for sure won’t leave Quebec,” he said, referring to potential buyers outside the province.

“The big players don’t do that. I never go look on SEAO. I wouldn’t even know they’re selling a hospital. If someone like me or like Devimco doesn’t know something is for sale on SEAO, probably you won’t get a better price.”

Major “players” are solicited directly by global real estate companies, Blouin said. “Governments do business with (brokers) for a reason: because they have much bigger databases than SEAO.”

He added that it’s normal practice to sign non-disclosure agreements when doing business with real estate brokers.

Blouin said he recently used CBRE to sell his stake in one of the towers on the Children’s site, 1111 Atwater. He got seven offers, five of which came from outside Quebec, he said.

He also revealed he bid unsuccessfully for the Montreal Chest Institute, and said he didn’t object to having his bid information released by the SQI in response to the Gazette’s access-to-information request.

“I bid on the Chest Institute, I bid on Radio-Canada, I bid on a bunch of stuff,” Blouin said, adding that the same developers bid on government properties for sale in Montreal.

The MUHC sold the Montreal Chest Institute in 2019 to a numbered company that was represented in the sales deed by Tinel Timu, a developer who was shot and killed this past April. Timu withdrew from the company at the time of the sale.