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Real estate clause sinks Chinese company’s plan for boarding school in Ontario cottage country

Cottages dot the shoreline of Lake Muskoka in Ontario. Nearly two years after talks began, negotiations have stalled between the cottage-country town of Gravenhurst and the province on plans to redevelop the site of a former sanatorium.

Mark Blinch/The Globe and Mail

A China-based company's plans to build a boarding school in the heart of Ontario's cottage country are on hold after a local municipality has dropped its support for the project and blamed the provincial government for obstructing the development.

Nearly two years after talks began, Gravenhurst officials say "negotiations are dead" between the town and province on plans to redevelop the 30-hectare site of a former sanatorium on Lake Muskoka that has been abandoned for nearly 25 years.

They say the province's unwillingness to drop a no-flipping clause – barring any developer from profiting from the land for 20 years – is at fault.

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On Thursday, Gravenhurst's chief administrative officer, Glen Davies, wrote a letter telling the province that the town of 12,000 was no longer interested in developing the surplus land.

"It's basically an acknowledgment that negotiations are dead and we need to free the province so that they can sell the land on the open market," he told The Globe and Mail.

The two-year saga between Gravenhurst and the provincial government started in December, 2015, soon after Infrastructure Ontario decided that the waterfront land around the long-abandoned hospital was ripe for redevelopment. Instead of selling off the land piecemeal to build cottages on the vast site, the town reached an agreement with the government so that it could lead the redevelopment of the land just north of the community's downtown.

Citing a lack of well-paying and permanent jobs in the scenic area, the town said it wanted to reserve the site for a future employer. Officials from Gravenhurst sought proposals to develop the area and accepted a plan put forward by a Toronto developer Knightstone and Maple Leaf Educational Systems, headquartered in China, to build a 1,500-student boarding school, as well as condos and a public park.

There was just one obstacle. The province insisted that because the land wouldn't be sold to the Chinese company and its Toronto-based developer on the open market, but would instead come through a deal with the municipality, the developers would need to agree that no profit could be made off selling the land for two decades.

If the idea for a school failed and the developers instead chose to sell the land for cottages, all profits would go to Ontario. It's a standard clause for a non-market deal, according to a spokesman for Infrastructure Ontario.

"As the sale is not on the open market, this is part of the contract so that the government may ensure that the property is used for the purposes it was transferred for," spokesman Ian McConachie said.

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For Gravenhurst, the clause became an obstacle to development. The town's mayor appealed to ministers and finally Premier Kathleen Wynne. The province refused to budge and said it was protecting taxpayers. Blaming an obstinate Queen's Park, the town has now abandoned its dreams of controlling the redevelopment.

"The province, including the premier, has not seen fit to make the project work," said Mr. Davies. He said the town agreed with the developer that they should be able to make a profit, especially with plans to develop condos in a corner of the site.

The school, which was meant to be named after Gravenhurst native Norman Bethune, was going to be Maple Leaf's flagship establishment, according to company vice-chairman Howard Balloch. Documents filed with the town put the cost of construction at $100-million and earmark nearly half the site for transfer back to the town as a public park. While Maple Leaf has schools in 18 Chinese cities and two schools in British Columbia, the Gravenhurst site was going to be the company's largest development in North America.

"We participated in good faith in a competitive process with Gravenhurst, we won that process, but we've been tripped up by conditions that would render our project uneconomic, through rules that were never made clear to us or the town," said Mr. Balloch, who is also a former Canadian ambassador to China.

He says the company had no intent of flipping the property, but the government's rule, which he called a no-profit clause, would make regular sales difficult. As an example of the difficulties, he cited the company's plan to sell a small number of condos to parents or faculty members, which would be nearly impossible with the clause in place.

While Maple Leaf might look to buy land under a future provincial sales process, Mr. Balloch said that after two years of negotiation, the company wasn't interested in another drawn-out process. "We've been disappointed and astonished at how disinterested the provincial government seemed to be in a project that would bring economic development to an area that needs it," he said.

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Officials with the province said it was premature to comment on when a future sale might take place.

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