Canadian Government Prohibits Non-Canadians From Purchasing Residential Real Estate – Landlord & Tenant – Leases

The federal government has recently passed
the Prohibition on the Purchase of Residential Property by
Non-Canadians
Act¹ (the
“Act”) for the stated purpose of
addressing the problem of rapidly increasing housing prices across
Canada. The Act came into force on January 1, 2023, and will be in
effect for at least two years. In conjunction with
the Prohibition on the Purchase of Residential Property by
Non-Canadians
Regulations²  (the
“Regulations”) the new legislation
sets out a strict prohibition regarding the purchase of residential
property by a “non-Canadian”. It affects contracts for
purchase and sale that come into effect on or after January 1,
2023.

The Act sets out significant penalties for contraventions. In
particular, it is critical for any professional working with real
estate purchasers to understand what constitutes “Residential
Property” and who is a “non-Canadian”. Specific
attention must be paid to the provisions affecting corporations and
corporate ownership.

Who is a Non-Canadian?

Section 2 of the Act defines “Non-Canadians” as:

1. an individual who is not
   

   • A Canadian citizen

   
   

   • A person registered as an Indian under the Indian
     Act or

   
   

   • A permanent resident




2. a corporation that is incorporated outside of Canada;




3. a corporation incorporated in Canada whose shares are not
   listed on a stock exchange in Canada that is
   “controlled” by a person referred to in paragraph (1)
   or (2) and




4. a prescribed person or entity.

Moreover, the Regulations define a “prescribed entity”
as:

1. an entity formed otherwise than under the laws of Canada or a
   province; and




2. an entity formed under the laws of Canada or a province; and
   referred to in paragraph (1) or controlled by a person referred to
   in paragraph (1), (2) or (3) of the definition of non-Canadian in
   section 2 of the Act³.

Further, the definition of “control” with respect to
a corporation or entity has a very low threshold. Section 1 of the
Regulations states:

1. direct or indirect ownership of shares or ownership interests
   of the corporation or entity representing 3% or more of the value
   of the equity in it, or carrying 3% or more of its voting rights;
   or




2. control in fact of the corporation or entity, whether directly
   or indirectly, through ownership, agreement, or otherwise.

What constitutes “Residential Property”?

“Residential property” has a very specific
definition in the Act. It includes:

• a detached house or similar building containing not more than
  three dwelling units;




• a part of a building that is a semi-detached house, rowhouse
  unit, residential condominium unit, or other similar premises that
  is or is intended to be owned apart from any other unit in the
  building;




• the proportion of any common property or the
  appurtenances⁴ to the house or building and the land
  subjacent or immediately contiguous to the building that is
  attributable to the house, unit, or premises and that is reasonably
  necessary for its use and enjoyment as a place of residence for
  individuals; and,




• any property, including vacant land, that is zoned for
  residential use or mixed use and that is located within a census
  agglomeration or census metropolitan area⁵.

The prohibition does not apply in certain
circumstances:

Importantly, the Regulations includes a number of exemptions
regarding the purchase of residential property. A prohibited
purchase does not include:

• the acquisition by an individual of an interest or a real right
  resulting from death, divorce, separation or a gift;




• the rental of a dwelling unit to a tenant for the purpose of
  its occupation by the tenant;




• the transfer under the terms of a trust that was created prior
  to the coming into force of the Act; or




• the transfer resulting from the exercise of a security interest
  or secured right by a secured creditor.⁶

Exceptions under the Act:

The Act also provides limited exceptions for:

• temporary residents and protected persons who fall within the
  meaning and highlighted sections of the Immigration and
  Refugee Protection Act; and




• non-Canadians who purchase residential property with their
  spouse or common-law partner, if the spouse or common-law partner
  qualifies under (1) above.⁷

Additionally, certain temporary residents are exempt from the
applicability of the Act and may purchase residential property if
they are students enrolled in a program of authorized study at a
designated learning institution, or if they hold a work permit, as
defined in the Immigration and Refugee Protection
Regulations. However, to fall within the exemption these
individuals also have to:

• satisfy the prescribed requirements regarding tax filings;




• have been physically located in Canada for a certain
  period;




• not have already purchased a residential property; and




• keep the residential property purchase within certain monetary
  limits.⁸

Consequences for Contravention: What does this mean for
purchasers or the lawyers, real estate agents, brokers, and other
professionals who work with purchasers?

If a non-Canadian is found guilty of purchasing residential real
estate, they will be liable on summary conviction to a fine of not
more than $10,000. Further, the Federal Government could apply to
the superior court (in Alberta, the Court of King’s Bench) to
force the non-Canadian to sell the property.

However, the non-Canadian remains legally bound to perform their
obligations under agreements that contravene the Act. This is
because, the Act does not undermine the validity or enforceability
of contracts of purchase and sale of real estate.⁹ This
means it is extremely important to determine if a purchaser
qualifies to purchase the property before they
enter into any purchase agreements. As a result, realtors and
brokers will especially need to be up to date on the
legislation.

If an individual is found guilty of counseling, inducing, aiding
or abetting a non-Canadian to purchase residential real estate in
Canada, or attempting the foregoing knowingthat the
non-Canadian is prohibited under the Act, they will be liable on
summary conviction to a fine not more than $10,000.00. There are no
exceptions in the Act or its Regulations for lawyers, real estate
agents, brokers, or other professionals.

There are also significant penalties for certain people involved
with a corporation or entity that commits an offence under the Act.
Regardless of whether the corporation or entity has been prosecuted
or convicted, the Act will pierce the corporate veil and hold the
following people liable:

• an officer, director, or agent or mandatory of the corporation
  or entity;




• a senior official of the corporation or entity; or




• any individual authorized to exercise managerial or supervisory
  functions on behalf of the corporation or entity.¹⁰

It is still unclear which department of the Federal Government
will be responsible for bringing these penalties or applying for
the sale of the properties purchased in contravention of the
Act.

Main Takeaway:

While CHMC¹¹ affirms that “it is the
responsibility of non-Canadian buyers themselves to ensure they are
eligible to purchase a residential property while the Act is in
force,” any professional working with real estate
purchasers in Canada has an obligation to familiarize themselves
with the prohibitions under the Act and the Regulations so they may
take steps to comply with the legislation.

Given the broad scope of the Act, professionals involved in the
real estate industry may wish to include provisions in purchase
contracts to protect themselves from liability. Moreover,
reasonable inquiries to confirm the property’s nature, the
purchaser’s citizenship status, and the property’s location
are imperative for realtors, lawyers and potentially even lending
institutions. This will be especially complicated for private
corporations where the necessary investigations will need to occur
in relation to all the shareholders.

Footnotes

1. Prohibition on the Purchase of Residential
Property by Non-Canadians Act, SC 2022, c 10, s
235

2.  Prohibition on the Purchase of Residential
Property by Non-Canadians Regulations,
SOR/2022-250

3. Section 2 of the Regulations.

4. Appurtenances means property (as an outbuilding
or fixture) or a property right (as a right-of-way) that is
incidental to a principal property and that passes with the
principal property upon sale or transfer, such as driveways,
drainage ditches, fences, and rights of way.

5. A census metropolitan area (CMA) or a census
agglomeration (CA) is formed by one or more adjacent municipalities
centred on a population centre (known as the core). A CMA must have
a total population of at least 100,000, based on data from the
current Census of Population Program, of which 50,000 or more must
live in the core based on adjusted data from the previous Census of
Population Program. For more information, please review 
Dictionary, Census of Population, 2021.

6. Section 4(2) of the Regulations.

7. Section 4(2) of the Act.

8. Section 5 of the Regulations.

9. Section 5 of the Regulations.

10. Section 6(2) of the Act.

11. CHMC – SCHL – 
Ensuring housing market remains available to
Canadians

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.