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Published: February 2023
The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the Act) came into force on January 1, 2023. The Act will be in force for two years and real estate lawyers need to consider the impact of the Act on their practice and their clients.
What exactly is prohibited?
Subject to certain exceptions, a non-Canadian will be prohibited from purchasing residential property.
Who will this apply to?
The prohibition applies to “non-Canadians” as defined in the Act. This includes individuals who are not Canadian citizens, permanent residents or persons registered as an Indian under the Indian Act. It also applies to non-Canadian corporations, including corporations that:
- are not incorporated under the laws of Canada or a province; or
- are incorporated under the laws of Canada or a province but are controlled by a non-Canadian individual. The threshold of control is set under the Regulations and would mean direct or indirect ownership of three per cent or more of the shares or “control in fact” (section 1 of the Regulations).
The definition of non-Canadians also includes a prescribed person or entity. The Regulations define a prescribed person or entity as an entity formed otherwise than under laws of Canada or a province or, an entity formed under the laws of Canada or a province but controlled by a non-Canadian (Section 2 of the Act and Section 2 of the Regulations).
If you have a client who is a non-Canadian you should consider if they fall under any of the exceptions. The exceptions are set out in section 4(2) of the Act and include:
- a temporary resident within the meaning of the Immigration and Refugee Protection Act who satisfies prescribed conditions (see Section 5 of the Regulations for the prescribed conditions);
- a protected person within the meaning of subsection 95(2) of that Act;
- an individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common law-partner is a Canadian citizen, person registered as an Indian under the Indian Act, permanent resident or person referred to in paragraph (a) or (b); or
- a person of a prescribed class of persons. (See Section 6 of the Regulations for who are prescribed persons)
Could this also apply to clients other than buyers?
Section 4 of the Regulations broadly defines “purchase”. It will include the acquisition of a legal or equitable interest or a real right in residential property. It may include any person, corporation or entity that registers an encumbrance on a property. There have been some differing opinions amongst lawyers on whether or not this would include registration of a mortgage. Currently no case law is available to help clarify this issue and lawyers should consider if clients such as private lenders are subject to the prohibition and watch for any case law that will provide further guidance.
The definition of purchase contains exceptions and Section 4(2) of the Regulations stipulates that a purchase does not include:
- acquisition by an individual of an interest or a real right resulting from death, divorce, separation or a gift;
- rental of a dwelling unit to a tenant for the purpose of its occupation by the tenant;
- transfer under the terms of a trust that was created prior to the Act coming into force; or
- transfer resulting from the exercise of a security interest or secured right by a secured creditor.
What properties are subject to the Act?
The Act applies to residential houses and condominiums, and vacant property that is zoned residential or mixed use. Lawyers should be familiar with the complete definition of “residential property” which is set out in Section 2 of the Act.
Section 3(1) of the Regulations contains an exclusion for property located outside a census agglomeration or a census metropolitan area. The Act may not apply to properties in small centres or non-urban areas. A map of the census agglomeration and census metropolitan areas can be found here.
Even if a property is not subject to the Act due to its location, you still should consider if it is controlled land and subject to the Foreign Ownership of Land Regulations.
Validity of Transactions
Even if a residential property is purchased in contravention of the Act, it does not affect the validity of the agreement (Section 5 of the Act).
Offence and Penalties
It is an offence for any non-Canadian to contravene the Act, but it is also an offence for anyone to assist a non-Canadian in purchasing residential property. If a corporation commits an offence the persons at the corporation that directed, authorized, assented to, acquiesced in or participated in the commission of the offence are a party to and liable for the offence. A person found guilty of an offence is liable on summary conviction to a fine of not more than $10,000. (Section 6 of the Act)
This would put lawyers who assist a non-Canadian in purchasing residential property at risk. Since agreements are valid even if they are purchased in contravention of the Act, a buyer may be forced to close without assistance from a lawyer. You should also consider your ethical obligations.
Lawyer’s Ethical Obligations
Rule 3.2-13 of the Code of Conduct prohibits lawyers from assisting or encouraging any fraud, crime or illegal conduct. A lawyer who assists a non-Canadian client in purchasing residential property could be subject to charges under the Act as well as subject to discipline by the Law Society. A non-Canadian buyer may be entitled to advice on the validity of the agreement and the potential consequences under the Act. However, a lawyer should be very careful not to provide advice on how to violate the law and avoid punishment.
By: Jesse Mackenzie, Practice Advisor