How the $3 million mortgage for the marina came about

Ministry first refused approval of the mortgage, then approved it, then cancelled the approval after the mortgage was in place

(By Sam Hogarth)

The facts in this story were obtained through three Freedom of Information requests and a number of publicly available documents. 

Thursday, May 7, 2015, around noon. Developer Klaus Fuerniss stands on A-dock of Gibsons marina and looks out over the water. Another grey day. A few months earlier, on January 26, he had agreed to buy the marina, a property he needed for his George hotel and condo project, from long-time owner Art McGinnis. But the buying process has not exactly proved easy sailing. In another week, on May 15 at noon, the sale will close. But the $3 million mortgage he is trying to get has run into problems. 

It’s been one thing after another, he muses, as he veers around a pile of goose leavings, frowning and making a mental note: tell staff to clean up. But his mind is elsewhere. He is pondering the email he received earlier that morning, at 10:52, from his lawyer Carol Lee. 

It had all seemed so simple. The purchase of the marina assets includes the buildings, the docks, the store, the business, and two leases: a land lease and a water lease. The 14 lots that make up the marina lands are leased from the town, and the town has given permission for the lease to be used as security for the mortgage. No problem there.

Muddy waters

But the water lease is a different matter. The marina waters belong to the federal Crown and are managed by the BC Ministry of Forests, Lands and Natural Resource Operations (FLNRO). The town holds the head lease for the waters from the province and the marina operator holds a sub-lease from the town. Both the head lease and the sub-lease for the water clearly state that permission from the province is needed for a mortgage.

Fuerniss had not foreseen any trouble. Carol Lee, his lawyer, had politely asked the ministry for permission. But according to this morning’s email, there is a fly in the ointment: the ministry refuses to deal with sub-tenants; they will only consider a request for mortgage permission if it comes from the town. By express post, Carol Lee has immediately sent papers to the town’s lawyer, Pamela Jefcoat. 

Better be quick, Klaus thinks. Only eight days left to closure.

A gathering storm

The next morning, Friday, May 8, the project encounters more headwind. At 9:38 a.m. Klaus Fuerniss receives an email from Carol Lee with alarming news: Maxine Davie, senior portfolio administrator responsible for signing official documents for the ministry, has informed her that the ministry is not able to consent to the mortgage for a sub-tenant. Davie has sent copies of her mail to two other senior civil servants at the ministry: Keith Anderson and Jacqueline Cavill. 

No time to waste. Klaus Fuerniss asks Carol Lee to solve the problem on the double, and she contacts town lawyer Pamela Jefcoat. At 10:40 that morning, Jefcoat sends an urgent email to Emanuel Machado, the town’s chief administrative officer (CAO), to help solve the problem! Nearly six hours later, at 4:22 p.m., Machado mails mayor Wayne Rowe to inform him of the situation. The records show no reply. Nor, unfortunately, has Pamela Jefcoat offered any ideas on how to proceed. 

As the weekend begins, Klaus Fuerniss is feeling a little unsettled. 

By Monday morning, May 11, the situation is tense. Although the ministry has been very clear it will not deal with sub-tenants, Klaus Fuerniss’s representative Art Phillips asks Keith Anderson, manager resource authorizations with the ministry, for a consent-to-mortgage. Anderson declines.

What to do? Standard procedure at the ministry is to charge a fee to issue a consent-to-mortgage. Klaus Fuerniss’s lawyer Carol Lee takes a bold step: on the afternoon of May 11, she notifies Maxine Davie and Keith Anderson that a cheque is on its way by rush courier.

Tuesday, May 12. Only three days left. Klaus Fuerniss drinks more Timmy’s coffee than usual. Again, Carol Lee contacts Keith Anderson and Maxine Davie. Maxine Davie emails back with a discouraging message: “Please note that we [the Ministry] cannot consent to a mortgage, using Crown lands and improvements as collateral between a sub-tenant and their lender.”

Wednesday, May 13. Carol Lee tries the Ministry again, to no avail. Keith Anderson insists there will be no consent for a mortgage on the marina waters.

Thursday, May 14, a day before closing date. Keith Anderson wants to make sure his message is absolutely clear. At 8:45 a.m., shortly after he starts his workday, he puts down his coffee mug and composes an email to Carol Lee. “Good morning Carol,” he writes. “We cannot register a mortgage to a subtenant as the province has no relationship with the subtenant.”

An hour later, Klaus Fuerniss’s representative Art Phillips unfolds a letter he has received by Canada Post. It is from CAO Emanuel Machado: Keith Anderson of the ministry has notified the town that the province will not consider an application for a mortgage to a sub-tenant. Art Phillips grabs his phone and speed-dials Klaus Fuerniss.

To the rescue

With only 27 hours left before closing time, the Canadian Imperial Bank of Commerce (CIBC) intervenes. Michael Ventresca, an associate with a law firm working for the bank, emails Keith Anderson.

“Keith,” he writes, “we act for CIBC. Will FLNRO simply ‘consent’ to a mortgage being granted by the subtenant and licensee to CIBC, acknowledging that the mortgage can’t be ‘registered’ with FLNRO? That would provide some comfort to CIBC. A letter confirming the town consents to the subtenant and licensee granting a mortgage would be sufficient.”

An interesting technicality.

Keith Anderson does not respond. Hands are being wrung. At 3:51 p.m., with less than 20 hours left, Michael Ventresca can’t stand the suspense any longer. He fires off an email: “Keith, have you had a chance to consider our suggestion or [sic] simply consenting? Please advise as soon as you can, Michael Ventresca.”

Obviously, Keith Anderson is behind his computer, because only six minutes later, at 3:57 p.m., he emails back, with cc’s to Maxine Davie and Jacqueline Cavill of the ministry, Klaus Fuerniss, and town lawyer Pamela Jefcoat. The answer is no.

Michael Ventresca gives it another shot. At 4:28 pm, he writes to Keith Anderson: “Keith, for clarity, would the province consent to an unregistered mortgage granted by the subtenant under the sublease? In other words, would the province simply consent to the mortgage, as head landlord and licensor, on the understanding that such a mortgage cannot be registered?”

A sudden course change

Then, suddenly and inexplicably, sometime between 4:28 p.m. and 7:02 p.m., the “no” is transformed into “yes.” The records do not give any information on how that happened. 

We do know that at 7:02, Carol Lee, working late, sends an urgent email to Maxine Davie: “Hi Maxine, our client’s lender (CIBC) has advised it needs to see the consents [for the mortgage] before 11 a.m. Friday morning so the internal application for funding can go in on time before the 11 a.m. cut-off time. Could you facilitate meeting this deadline by emailing the consents to all of the above parties when they are available. Thanks.”

Friday, May 15. At 10:31 a.m., with less than half an hour to spare before 11 a.m.,  Carol Lee sends another email to Maxine Davie. “Hi Maxine, I am asking Pamela to call you as soon as possible to address the town’s query with respect to the sub tenure.” 

The documents provided by the town contain no record of the query.

Maxine Davie is frantically working on a copy of the provincial consent to sublease document. At 10:56 a.m., when CIBC urgently needs the consent-to-mortgage, Maxine Davie fires off an email to Carol Lee: “Carol, what is or will be the effective date or reference date for the sub-lease I need it to put in the consent – the document I have is blank right now.”

The one-page document in front of Maxine Davie has four sections. Section 2 explicitly forbids a mortgage without consent of the province. But there is a white space at the bottom, ready for an extra sentence.

At 11:01 a.m. Carol Lee replies: “Today’s date, thanks.”

A few minutes after 11 a.m., the official document reads: 

Provincial Consent to Sub-Lease. Lease no 242098, File # 0356286, Disposition # 893721.

At the bottom, a sentence is added: 

“The Province’s consent to mortgage given on May 15, 2015 and will expire on February 27, 2042 or an earlier date as requested by the Lessee.

Maxine Davie    

Authorized signatory”

The document looks strange and unusual, with two contradictory statements about the consent to mortgage on one page. Trouble is coming. 

The winds calm—or do they?

But that day, May 15, just before noon, CIBC grants the $3 million mortgage and the sale closes. In Gibsons, Klaus Fuerniss breathes a sigh of relief. With cameras clicking, he shakes hands with former marina owner Art McGinnis. “We are really very excited to jump in and get started,” Fuerniss tells local newspaper The Coast Reporter. 

May 15 is a long day, and there is more business to attend to.

At 2:05 p.m. town lawyer Pamela Jefcoat sends an email to Emanuel Machado: “Please see the attached Release and Indemnity Agreement. Please let me know if you have any comments at your earliest convenience.”

Apparently, the town wants assurances that Klaus Fuerniss Enterprises and Marina Hotel Holdings (MHHL) will indemnify the town in case of a default on the $3 million mortgage. 

“Good as is,” Machado replies at 3:05 p.m. But a few minutes later, he gets an urgent phone call from Jefcoat: there is a problem with the agreement. The censored records do not show what it is. 

Jefcoat follows up with an email at 3:22 p.m. “Importance: High. Further to our discussion, please find attached a revised blacklined draft of the Indemnity. Could you please confirm whether these changes are acceptable to the town.”

All we know from the censored documents is that there is some back and forth, but finally, at 4:20 p.m., the agreement has been signed by Klaus Fuerniss on behalf of Klaus Fuerniss Enterprises and Marine Hotel Holdings Ltd, and by Mayor Wayne Rowe for the town. Gibsons corporate officer Selina Williams signs a few days later. 

Surprisingly, despite the revisions, the indemnity and release agreement still states that there is no provincial consent to the mortgage: “Pursuant to Section 7.1 of the Head Lease, the Town and MHHL have requested the Provincial Crown’s consent to MHHL’s mortgage of its leasehold interest in the Sublease but the Provincial Crown has not provided such consent as of the date of this Indemnity and Release agreement.”

Yet Maxine Davie had officially signed a consent-to-mortgage several hours earlier.

Questions arise

In September 2015, several concerned citizens take the consent-to-mortgage document to a lawyer. After studying it carefully, he raps his knuckles on his desk, leans back in his chair, and gives them an inquiring look. “Is this a forgery?” he asks.

On September 30, the citizens scan the document and email it to Kevin Haberl, FLNRO’s Acting Director Authorizations South Coast. Is this an authentic document?

Yes, this is an authentic document, he emails back. But the province cannot provide consent for a mortgage to a sub-lessee, and the province had made that very clear to the sub-tenant (Klaus Fuerniss), he writes.

The citizens are stumped. If the province cannot give its consent, how can this be an authentic document, they ask.

Haberl’s answer arrives within minutes. “The provisions of Article 7 in the Lease restricting the Lessee from assigning, mortgaging, subletting or transferring the Lease without the prior written consent of the Province remain in full force and effect.” 

Further emails with questions remain unanswered. The citizens decide to make a Freedom of Information request. Can the ministry please provide more information about this mysterious consent-to-mortgage document?

They receive a surprising answer. On October 2, 2015, only two days after they had shown the document to Kevin Haberl, Maxine Davie has officially revoked the consent-to-mortgage she signed in May. The documents are enclosed in the FOI package. 

“REPLACED” the page with the consent-to-mortgage says in big letters. “Consent cancelled May 15/15 MD.”

“Dear Emanuel Machado,” Maxine Davie says in an accompanying letter. “It came to our attention that the consent to Sub-Lease sent to you in May of this year contained an administrative error. The last paragraph of the Consent to Sub-Lease that was sent to you in May stated ‘the Province’s consent to mortgage hereby given’. The word mortgage was an error. The error has been corrected. Please replace the Consent to Sub-Lease sent to you in May with the attached Consent to Sub-Lease dated October 2, 2015. The sub-lease consent forms an integral part of your Lease document and must be attached thereto. 

Yours truly, Maxine Davie, Senior Portfolio Administrator”

An administrative error. . . . The new consent-to-sub-lease does not contain a consent-to-mortgage.

“A clever deal”

Yet Klaus Fuerniss’s Marina Hotel Holdings Ltd., which owns and operates the marina, now has a $3 million mortgage. The documents are available at the Land Title Office under number CA4407749.

There is no record of CAO Machado having notified Klaus Fuerniss of the replacement, and it is not known whether CIBC knows about it.

The release and indemnity agreement was put in place to protect the town from financial liability in case of a default on the mortgage. Klaus Fuerniss signed on behalf of two limited companies (Klaus Fuerniss Enterprises Ltd. and Marina Hotel Holdings Ltd.), and therefore is not personally liable.

A corporate lawyer in Vancouver was impressed when he reviewed how this $3 million mortgage came about. “They made it happen,” he said. “A really clever deal.”

Sam Hogarth is a local writer who is fascinated by the creative non-fiction genre. Says Hogarth, “The facts are unalterable, but a mere recitation of them would be dry, so imagining plausible actions and reactions of the characters involved was a way to spice them up with a little human interest.”

UPDATE:

The Coast Clarion recently received several phone calls, one of them from a chartered accountant. Was it true that the marina owner had managed to put up 14 parcels  of town land as security for the $3 million mortgage to buy the marina in 2015? And why had the town not listed the mortgage as a liability on its financial statements?

We pulled marina mortgage document CA4407749. It gives two securities for the mortgage: 14 town-owned land lots and the marina leases, but the document is unusual and hard to understand. A real estate conveyancer who examined it could not make head or tail of it. 

The Coast Clarion asked mayor Beamish if Klaus Fuerniss had used town land as security for a mortgage.

The mayor answered that the mortgage is on the lease of the lands, not on the land itself:

“The mortgage in question is a mortgage of the sublease between the Town and Marine Hotel Holdings Ltd.  Although the mortgage is visible on title to the lands as charge CA4407749, section 8 on page 4 of the mortgage make it clear that the interest mortgaged is the sublease.  The sublease is considered an asset of MHHL and MHHL has pledged that asset as security for the $3 million loan it received from CIBC.  

Under the sublease, MHHL was required to obtain the Town’s consent to the mortgage.  It is common practice for a tenant under a long-term lease to seek and obtain the landlord’s consent to a mortgage of the lease for financing purposes. (. . . ) The mortgage does not appear on the Town’s financial statements as a liability because it does not encumber anything owned by the Town.  The asset mortgaged and at risk in the event of a default is the sublease, an asset of MHHL’s.”

The Coast Clarion sought clarification, but the mayor would not comment further. A lawyer unrelated to the case examined the document and confirmed that the security for the mortgage is, indeed, the lease, not the actual land. In case of foreclosure, CIBC can sell the lease. “I would imagine that in that case, the town would have to give consent to a new operator,” he said. 

The lawyer explained that a mortgage on a lease is quite common.

The Coast Clarion also asked the mayor about the Community Charter forbidding municipalities to provide assistance to a business. 

“By granting consent [for a mortgage on the marina leases], the town did not breach the prohibition on providing assistance to a business under the Community Charter,” the mayor wrote. “Although the town’s consenting to the mortgage results in a benefit to MHHL [Marina Hotel Holdings Ltd.], it was also to the town’s benefit that MHHL obtain financing so MHHL could purchase the lease interest and improve the lease area.”

The Coast Clarion has identified two individuals who say they wanted to buy the marina at the time and did not need mortgages.