Brookfield Office Properties Canada

Decision

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, s. 9.1 -- issuer is a real estate investment trust which holds all of its properties through limited partnership -- entity holds units in limited partnership which are exchangeable into and in all material respects the economic equivalent to the issuer's publicly traded units -- issuer may include entity's indirect interest in issuer when calculating market capitalization for the purposes of using the 25% market capitalization exemption for certain related party transactions.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 5.5(a), 5.7(a), 9.1.

June 6, 2011

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

BROOKFIELD OFFICE PROPERTIES CANADA

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction (the Principal Regulator) has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) that the Filer be granted an exemption pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) from the minority approval and formal valuation requirements under Part 5 of MI 61-101 relating to any related party transaction of the Filer entered into indirectly through Brookfield Office Properties Canada LP or any other subsidiary entity (as such term is defined in MI 61-101) of Brookfield Office Properties Canada LP, if that transaction would qualify for the transaction size exemptions set out in sections 5.5(a) and 5.7(a) of MI 61-101 if the indirect equity interest in the Filer in the form Exchangeable LP Units (defined below) were included in the calculation of the Filer's market capitalization (the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) The Ontario Securities Commission is the principal regulator for the Application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in Québec.

Interpretation

Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision unless otherwise defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a limited purpose unincorporated, closed-end, real estate investment trust established under and governed by the laws of the Province of Ontario and created pursuant to a declaration of trust dated March 19, 2010 (the Declaration of Trust).

2. The Filer's head office is located at Suite 330, 181 Bay Street, Toronto, Ontario, M5J 2T3.

3. The Filer is a reporting issuer (or the equivalent thereof) in each of the provinces and territories of Canada and is not in default of any applicable requirements of the securities legislation of such provinces and territories.

4. The Filer is authorized to issue an unlimited number of trust units (Trust Units) and an unlimited number of special voting units (Special Voting Units). As at March 31, 2011, there were 26,098,471 Trust Units and 67,088,022 Special Voting Units issued and outstanding. Special Voting Units are only issued in tandem with the issuance of Exchangeable LP Units (as defined below) and therefore the number of Special Voting Units outstanding at any point is equivalent to the number of Exchangeable LP Units.

5. The Trust Units are listed and posted for trading on the Toronto Stock Exchange under the symbol "BOX.UN."

6. The operating business of the Filer is carried on by Brookfield Office Properties Canada LP, which holds direct and indirect interests in the properties in the Filer's portfolio and carries out all of its property investment and operating activities.

7. Brookfield Office Properties Canada LP is a limited partnership formed under the laws of the Province of Ontario pursuant to a limited partnership agreement that was amended and restated on May 1, 2010 (the Amended and Restated Limited Partnership Agreement). Brookfield Office Properties Canada LP's head office is located at Suite 330, 181 Bay Street, Toronto, Ontario, M5J 2T3.

8. Brookfield Office Properties Canada LP is not a reporting issuer (or the equivalent thereof) in any jurisdiction and none of its securities are listed or posted for trading on any stock exchange or other market.

9. Brookfield Office Properties Canada LP is authorized to issue an unlimited number of Class A LP Units and an unlimited number of Class B LP Units (the Exchangeable LP Units). As at March 31, 2011, there were 26,033,330 Class A LP Units and 67,088,022 Exchangeable LP Units issued and outstanding. The Filer holds all of the outstanding Class A LP Units and BPO Properties Ltd. (BPP) and its subsidiaries hold all of the outstanding Exchangeable LP Units.

10. The Exchangeable LP Units are, in all material respects, economically equivalent to the Trust Units:

(a) the Exchangeable LP Units are not transferable (except to affiliates of the current holder) but are exchangeable on a one-for-one basis for Trust Units at any time at the option of the holder thereof (subject to customary anti-dilution provisions and provided that such exchange would not jeopardize the Filer's status as a "unit trust", "mutual fund trust" or "real estate investment trust" under the Income Tax Act (Canada)) pursuant to the terms of an exchange and support agreement dated as of May 1, 2010 between, among others, the Filer and Brookfield Office Properties Canada LP (the Exchange and Support Agreement);

(b) the distributions to be made on the Exchangeable LP Units are equal to the distributions that the holder of the Exchangeable LP Units would have received if it were holding the Trust Units that may be obtained upon the exchange of such Exchangeable LP Units; and

(c) each Exchangeable LP Unit is accompanied by a Special Voting Unit so that the holder of the Exchangeable LP Units has voting rights on matters respecting the Filer equal to the number of Trust Units that may be obtained upon the exchange of the Exchangeable LP Unit to which such Special Voting Unit is attached.

11. The Filer and Brookfield Office Properties Canada LP issued Trust Units and Exchangeable LP Units, respectively, to BPP on May 1, 2010 in connection with the reorganization of the directly owned office assets of BPP under the Filer and the acquisition by Brookfield Office Properties Canada LP of BPP's interest in Brookfield Place.

12. As at March 31, 2011, BPP owned an aggregate equity interest in the Filer of approximately 83.3%, consisting of 10,564,108 Trust Units and 67,088,022 Exchangeable LP Units.

13. As a result of BPP's ownership of Trust Units and Exchangeable LP Units, transactions involving the Filer entered into indirectly through Brookfield Office Properties Canada LP or a subsidiary entity (as such term is defined in MI 61-101) of Brookfield Office Properties Canada LP with BPP above, are related party transactions subject to MI 61-101.

14. If MI 61-101 applies to a related party transaction by an issuer and the transaction is not otherwise exempt:

(a) the issuer must obtain a formal valuation of the transaction in a form satisfying the requirements of MI 61-101 prepared by an independent valuator; and

(b) the issuer must obtain approval of the transaction by disinterested holders of the affected securities of the issuer (together, requirements (a) and (b) are referred to as, the Minority Protections).

15. A related party transaction that is subject to MI 61-101 may be exempt from the Minority Protections if at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, exceeds 25% of the issuer's market capitalization.

16. The Filer may not be entitled to rely on the automatic size exemption available under the Legislation from the requirements relating to related party transactions in the Legislation because the definition of market capitalization in the Legislation does not contemplate securities of another entity that are exchangeable into equity securities of the issuer.

17. The Exchangeable LP Units represent part of the equity value of the Filer and provide the holder of the Exchangeable LP Units with economic rights which are equivalent to the Trust Units. The effect of the exchange right attaching to the Exchangeable LP Units is that a holder of Exchangeable LP Units is entitled to receive Trust Units upon the exchange of the Exchangeable LP Units. Moreover, the economic interests that underlie the Exchangeable LP Units are identical to those underlying the Trust Units; namely, the assets held directly or indirectly by Brookfield Office Properties Canada LP.

18. If the Exchangeable LP Units are not included in the market capitalization of the Filer, the equity value of the Filer will be understated by the value of the Exchangeable LP Units (currently being approximately 72%). As a result, related party transactions of the Filer may be subject to the Minority Protections in circumstances where the fair market value of the transactions is effectively less than 25% of the fully diluted market capitalization of the Filer.

19. Section 1.4 of MI 61-101 treats an operating entity of an income fund on a consolidated basis with its parent trust entity for the purpose of determining which entities are related parties of the issuer and what transactions MI 61-101 should apply to. Therefore, it is consistent with MI 61-101 that securities of an operating entity, such as the Exchangeable LP Units, be treated on a consolidated basis for the purposes of the determining the market capitalization of the Filer under MI 61-101.

20. The inclusion of the Exchangeable LP Units when determining the Filer's market capitalization is consistent with the logic of including unlisted equity securities of the issuer which are convertible into listed securities of the issuer in determining an issuer's market capitalization in that both are securities that are considered part of the equity value of the issuer whose value is measured on the basis of the listed securities into which they are convertible or exchangeable.

Decision

The Principal Regulator is satisfied that the test contained in the Legislation that provides the Principal Regulator with the jurisdiction to make the decision has been met.

The decision of the Principal Regulator under the Legislation is that the Requested Relief be granted to the Filer provided that:

(a) the transaction would qualify for the market capitalization exemption contained in MI 61-101 if the Exchangeable LP Units were considered an outstanding class of equity securities of the Filer that were convertible into Trust Units;

(b) there be no material change to the terms of the Exchangeable LP Units and Special Voting Units, including the exchange rights associated therewith, as described above and in the Declaration of Trust, the Amended and Restated Limited Partnership Agreement and the Exchange and Support Agreement; and

(c) any annual report or equivalent of the Filer that is required to be filed in accordance with applicable securities laws contain the following disclosure, with any immaterial modifications as the context may require:

"Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. Brookfield Office Properties Canada ("BOX") has been granted exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, permits it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of BOX's market capitalization, if the Class B LP Units of Brookfield Office Properties Canada LP are included in the calculation of BOX's market capitalization. As a result, the 25% threshold, above which the minority approval and valuation requirements would apply, is increased to reflect the approximate 72% indirect interest in BOX in the form of Class B LP Units of Brookfield Office Properties Canada LP."

"Naizam Kanji"
Deputy Director, Corporate Finance
Ontario Securities Commission