FOLA wants feds to revoke Prohibition on the Purchase of Residential Property by Non-Canadians Act

By Amanda Jerome

Law360 Canada (October 27, 2022, 11:16 AM EDT) -- The Federation of Ontario Law Associations (FOLA) is raising “various concerns” with proposed regulations under the Prohibition on the Purchase of Residential Property by Non-Canadians Act, issuing a letter which calls on the federal government to “revoke the Act.”

“This legislation has not been thoroughly thought out and the consultation process not vastly disseminated to provide meaningful feedback to guide prohibitions of this nature and with such implications for local professionals,” the letter, written by FOLA real estate chair Mark Giavedoni, stated, stressing that the “preference” would be to “revoke the Act.”

The letter noted that “if the Government feels that the policy in having such restrictions is still reasonable, a more fulsome dialogue would be appropriate.”

Mark Giavedoni, FOLA

The “jurisdictional issues are material and may pose a significant issue of constitutional validity. Clearly there are practical implications to be sorted out in its passage. Both reasons are sufficient to revoke the Act prior to its coming-into-force date of January 1, 2023 and to better prepare professionals, trustees, investors and non-Canadians who may have transactions in the works, to understand how they can comply or manage this without liability,” the letter, issued Oct. 21, explained.

The first concern the letter highlighted was the “Ultra Vires and Jurisdictional Challenges.”

“The essence of this legislation is to regulate matters which fall within the Provincial jurisdiction of property and civil rights. Ontario, British Columbia and other provinces have already taken steps to impose restrictions on purchase of certain property by non-residents and those regimes should be left in place to govern the policy matter or to address the Government’s goals of preserving residential inventory for Canadians,” the letter explained, noting that “threatening resident advisors with fines for participating in transactions, which can often occur quickly and come to lawyers already signed and contractually committed, is how this legislation is being perceived and may, in fact, operate in practice.”

The letter also noted that the Act “appears to target real estate professionals and lawyers who fail to ‘stop’ non-Canadians from purchasing residential properties in Canada.”

“The $10,000 maximum fine for these assistive parties is material and consequential,” the letter added, emphasizing that “there is a possibility that many lawyers may simply stop assisting clients on the prospect that they ‘may’ be a non-Canadian, in particular if the means to verify control of a corporation or as a distant beneficiary of a trust is too onerous to confirm,”  which could “open professionals to claims of human rights violations.”

The letter also raised issues with geographical and property scope, noting that the government’s “consultation paper suggests that regulations will identify census metropolitan areas that would be applicable to the scope of the prohibition”

“Lawyers work in the area of exact details and the jurisdictional boundaries of these census metropolitan areas will need to be precisely identified and defined with respect to each province’s land titles system and, ideally, municipal boundary. In many cases, the federal boundary identification standards (such as electoral districts, ridings, postal code areas and such) are not aligned with the actual municipal boundaries,” the letter explained, stressing that the “arbitrary limit of three or less dwelling units in a property is also a concern as it suggests that a non-Canadian purchaser would not be interested in larger buildings (like apartment buildings or condominium/strata projects) and there is no prohibition on those under the Act.”

According to the letter, the Act and regulations “do not speak to properties that include residential premises as part of a larger parcel of land or a mixed use building.” However, the letter noted, it is “increasingly frequent to see ground level commercial/retail properties with one or two levels of residential housing above it.”

“A non-Canadian would now be precluded from such an investment because of the tied residential component. Similarly agricultural properties often have housing on the farm for workers or family; would a non-Canadian be precluded from acquiring the farm in this context?” the letter asked, stressing that there are a “number of possible complications with the Act that would require more planning and consultation rather than hastily promulgating it and leaving such wide gaps of interpretation open for debate, or before the Courts in the context of a regulatory sanction.”

In an interview with The Lawyer’s Daily, Giavedoni emphasized that in the “context of a corporate purchaser, it would be difficult to drill down as far as the legislation is asking to determine if there is control by a non-Canadian.”

“That’s where it’s going to start getting tricky — asking the right questions down to that level, three per cent shareholder control” and how do you know if that person is the “controlling-type that has ostensible control even though they may not have voting control?” he queried.  

Giavedoni noted that this example can be seen frequently when there is a “patriarch or a matriarch of a family that’s been pushed down to a small shareholder, but the kids who are running the show” wouldn’t “dare” to do “anything contrary to mom or dad’s wishes.”

A critical concern, he noted, is that “lawyers are usually not engaged or involved until the deal is done,” especially when it comes to a residential purchase.

“So in a way, there may be some ability to say ‘I can’t take that on because you’ve already committed yourself to doing something you’re not allowed to do.’ But then that just opens up the door in terms of, ‘well, how do I get out of it? How do I fix this?’ And there’s no guidance in the legislation,” he said, noting that federal ministers have “other things to do” than “weigh in on residential real estate purchases across the country.”

Giavedoni has “already heard from a number of lawyers that are worried about how this is going to land on their shoulders.”

“If you look at the regulation itself it’s pretty scant. Basically, it says: ‘you shall not sell, or participate in the purchase of residential property by non-Canadians,’ ” he added, noting there are a “couple of points about what that is supposed to mean and then that’s it; everything else is, ‘as prescribed by regulation.’”

“This is legislation by regulation, and we don’t know what that’s going to look like,” he stressed, encouraging lawyers who practise in residential real estate to know that this legislation is “on the books.”

Lawyers, he explained, “need to know that it comes into force in January. They need to do what they can to understand what this even means for the way that they practise because they will have to inform the way they take intakes, understand who their client is, particularly if they’re a new client. They need to be a bit more diligent in terms of whether this is something they should be taking on and how they can manage the client’s expectations and be in a position to advise them if they can’t even enter into this contract.”

“I think that’s kind of the warning signs: this is here and if you aren’t diligent enough you could be facing a $10,000 fine,” he added.

FOLA’s letter was addressed to Deputy Prime Minister and Minister of Finance, Chrystia Freeland; the Minister of Housing and Diversity and Inclusion, Ahmed Hussen; and the Minister of Justice and Attorney General of Canada, David Lametti.

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