Owners or managers of properties with third-party signs erected on them should be aware that in December, 2009, City Council passed a new Sign By-law and third-party sign tax (“Sign Tax”) which came into force on April 6, 2010 (with strong opposition from owners and sign companies). However, some property owners and property managers may not be not clear about how the Sign Tax works and what affect it can have on the value of their property and the cash-flow.
The Sign Tax applies to all “owners” of third-party signs. These are signs ( on the ground, wall and/or roof) that advertise a business, goods or services not available at that property where the sign is and that also have a sign face area greater than one square metre (for a general overview of the Sign By-law, Download the PDF published by the Waterfront Business Improvement Area). This obviously does not apply to pylon, roof, wall, or canopy signage at a property that advertises business, goods or services offered by tenants operating at the property.
If you own or manage property with a third-party sign that attracts Sign Tax, then the person responsible for paying the Sign Tax is the person who owns and controls what goes on the sign i.e. the “sign copy”. If the person who controls the display of sign copy is not the same person as the person who owns the sign itself (i.e. the structure), then the “owner” for purposes of liability for the Sign Tax is the person who controls the display of the ads on the sign.
All owners of third-party signs in the City were required to provide a complete inventory of their signs to the Chief Building Official by January 31, 2011 and then receive their tax bill for the Sign Tax by March 31, 2011, with payments due July 1, 2011. If you have a third-party sign that was only permitted after April 6, 2010 the initial Sign Tax is payable on the issuance date of that third-party sign permit.
So, how much is the Sign Tax per sign? That depends on what sign class the sign is in pursuant to the By-law. There are 5 Classes of signs and what class a sign falls under depends on the size of the sign and the type of signage on it (i.e. static, mechanical, or electronic copy). Sign Tax currently ranges from $1,150.00 per sign to $24,000.00 per sign.
Going forward, the sign owner must, by January 31 of every year provide certain information to the Chief Building Official of Toronto who assesses the Sign Tax by March 31 of each year. If an owner does not pay it when due as a result of fraud or wilful default, the By-law provides for a penalty of up to twice the Sign Tax otherwise payable with interest at 15% from the payment date.
One of the largest sign owners in Canada, Pattison Outdoor Advertising LP, challenged the Sign Tax in Court and in a March 3, 2011 decision of the Ontario Superior Court of Justice, the Court upheld the ability of the City to impose the Sign Tax under the new Sign Bylaw BUT grandfathered existing signage as at April 6, 2010 (Pattison Outdoor Advertising LP v. Toronto (City), 2011 ONSC 537) so the Sign Tax did not apply to those “grandfathered” signs. This was a big hit (approximately 70%) to the City’s pro forma 2011 revenues for the Sign Tax.
In addition to the April 6, 2010 grandfathering exemption, there are also 13 other exemptions in the By-law most of which exempt owners that are municipal entities, the Federal and Provincial Crown, hospitals, local boards etc.
The Lesson: If you own or represent owners of property with third-party signs, or are in due diligence for a purchase or loan to a borrower with third-party signage on its property, you should determine if the sign(s) is/are lawfully erected or displayed pursuant to a third-party sign permit issued on or before April 6, 2010 and which remains in effect. If so, then the Sign Tax does not apply. You want to verify that the sign permit was issued on or before April 6, 2010 and remains in good standing (e.g. the sign structure has not been materially changed necessitating the need for a new sign permit).
If the permit was issued after April 6 2010, then Sign Tax applies to the owner i.e. the person “who controls the display of sign copy. Non-payment does not result in a lien on the property owner’s lands, but can trigger penalties to the person who controls the advertising on the sign.
Some landlord’s try to exclude certain types of advertising (e.g. adult entertainment, political advertisements) from signage and by doing so, its possible the City could argue that such a landlord is an “owner” and liable for the Sign Tax since that landlord “controls the display of Sign Copy” to some degree.
The Sign Tax affects all new third-party signage in Toronto and the net revenues generated from advertisers. Where a landlord receives a percentage fee based on sign advertising revenues as opposed to a flat rate, this can be a concern because that fee will likely be net of taxes and thus, be reduced by virtue of the Sign Tax.
Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
***If there is a general real estate or leasing related question you would like to see addressed in a future article in “The Legal Corner”, please contact me, Darrell Gold LLB directly by e-mail ([email protected]) with your suggestion. Not all requests can be accommodated.***