Foreigners banned from Canadian real estate
By Agnes Ng, Real Estate Lawyer, Beard Winter LLP
This article may be of interest to you if you are an investor, trustee, seller, potential purchaser, realtor or are assisting in any way in a real estate transaction.
The federal government recently introduced the Prohibition on the Purchase of Residential Property by Non-Canadians Act (S.C. (Statues of Canada) 2022, c.10, s. 235) (the “Act”), in force as of January 1, 2023.
The Act expressly provides that anyone who “counsels, induces, aids or abets or attempts to counsel, induce, aid or abet a non-Canadian to purchase, directly or indirectly, any residential property knowing that the non-Canadian is prohibited under this Act” is guilty of an offence and is liable on summary conviction to a fine up to $10,000.00. Furthermore, the Minister may apply to the court to sell the impugned residential property and the purchaser (now seller) will only be entitled to recover proceeds from the sale equal to what they paid for it.
The Act places inherent risk and liability on those who work around real estate transactions
This may include lawyers, real estate agents, real estate mortgage brokers, real estate brokerages, real estate consulting firms, trustees, administrators, mortgage lenders, title insurers, etc. The Act also applies to individuals operating on behalf of a corporation. If a corporation or entity commits an offence, any of the following persons that directed, authorized, assented to, acquiesced or participated in the commission of the offence is liable for the offence whether or not the corporation or entity has been prosecuted or convicted:
- An officer, director or agent or mandatory of the corporation or entity;
- A senior official of the cooperation or entity;
- Any individual authorized to exercise managerial or supervisory functions on behalf of the corporation or entity.
Significant due diligence and care should be undertaken when dealing with real estate transactions
The Act does not provide provisions for the purchaser to rescind the purchase agreement and does not invalidate the contract either. Therefore, significant due diligence and care should be undertaken when dealing with real estate transactions, especially in terms of confirming citizenship status. This continues to apply whether at the stage of client consultation, contract negotiation, due diligence period or in preparation of the final closing.
Fortunately, the Act contemplates a due diligence defence and does not create strict liability. The aiding and abetting provisions only apply to “knowingly” aiding and abetting, so absence of knowledge after due diligence may be a probable defence.
Another consideration under this Act is the risk of inadvertent application. As the definition of residential property under this Act is rather broad, there may be circumstances where lands zoned residential may be acquired by a Canadian corporation with a low foreign ownership (possibly for the purposes of redevelopment). Though not immediately intuitive, this would be in contravention of the Act.
What is considered residential property?
Residential property under this Act includes, but is not limited to detached houses, semi-detached houses, rowhouse units, residential condominiums, residential apartments or other similar properties as well as land that does not contain any habitable dwellings but is zoned for residential or mixed-use and located within census agglomerations or census metropolitan areas. Non-residential property that has residential uses and or dwelling units would also fall under this prohibition.
Who is considered a non-Canadian?
Non-Canadians include persons who are not citizens of Canada, persons who are not registered as an Indian under the Indian Act, or a person who is not a permanent resident of Canada. The term extends to include Canadian federal or provincial corporations and enterprises which is controlled by foreign corporations or foreign individuals as having direct or indirect ownership of shares/units representing more than 3% of the value of equity or 3% or more of the voting rights.
Exclusions under the Act
Exclusions from the definition of Non-Canadians include refugees, individuals who purchase residential property with a spouse or common-law partner who is otherwise eligible to purchase residential property in Canada, and other individuals that may be deemed to be exempt pursuant to future regulations (i.e. students, foreign workers, and indigenous persons, etc.).
Although the budget and the consultation terms of reference suggest that the legislation is only intended to be in effect for two years, there is nothing in the legislation itself that actually confirms the end of the prohibition at any given time.
Agnes Ng provides legal advice to clients on a wide range of commercial and residential real estate matters. You can reach Agnes at firstname.lastname@example.org
*This article is written for information purposes only and is not legal advice. You should not rely on, or take or fail to take any action based upon this information.