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Impending Ban On Purchases Of Residential Real Estate By Non-Canadians: What Home Buyers, Builders And Brokers Need To Know – Real Estate

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The Prohibition on the Purchase of Residential Property by
Non-Canadians Act
(the “Act“) will
come into force on January 1, 2023, as one of several measures
enacted by the federal government to target soaring housing prices,
increase supply and curb foreign investor speculation. With few
exceptions, the Act will impose a two-year ban on the purchase of
substantially all types of residential property (including, without
limitation, pre-construction condominium units and freehold homes,
and potentially including vacant land zoned for residential
development in certain geographical areas) by individuals who are
not Canadian citizens or permanent residents of Canada. The ban
will also apply to corporations that are not incorporated in Canada
or controlled by Canadian citizens or permanent residents of Canada
within the meaning of the Act’s Regulations (collectively,
non-Canadians“).

While the Act provides a detailed (albeit currently incomplete)
breakdown of the applicability of the Act to certain individuals,
corporations and property types, this article focuses on key
aspects of the legislation and steps that buyers, builders and
brokers should consider when buying, selling or advising on the
purchase and sale of qualifying property. The Act does not apply to
non-Canadians who enter into or assume liability under agreements
of purchase and sale prior to January 1, 2023, and impending
purchases of qualifying residential property will, therefore, not
likely be impacted by the Act. However, agreements of purchase and
sale and assumptions of existing agreements of purchase and sale
entered into by a non-Canadian on or after January 1, 2023, will
remain valid and the transaction can be completed. That said, we
wish to bring the following to your attention:

a) Buyers should
ensure that they are fully aware of their status as a non-Canadian
or that of a buyer corporation controlled by them that the Act
deems a non-Canadian, as the Act empowers the Court to order the
sale of the acquired property on terms it considers appropriate.
The Act provides that in no circumstance shall the proceeds
received from such Court-ordered sale exceed the purchase price
paid for the property. As such, a non-Canadian buyer will have
sustained a significant financial loss after accounting for the
“closing costs” incurred in connection with such purchase
in addition to the penalties and consequences detailed below, the
most significant of which in Ontario being Land Transfer Tax and
municipal Land Transfer Tax for properties located in Toronto. As a
result, a non-Canadian buyer will have incurred a significant
financial loss at the outset of a contravening transaction with no
entitlement to the increased value of the acquired property after
having potentially significant amounts of money tied up via
deposits for several years in the context of pre-construction
homes.

While the Regulations are expected to
contain more specific restrictions regarding investments in
qualifying property that can and cannot be made by non-Canadians,
buyers should keep in mind that these restrictions could
potentially restrict investment by non-Canadians in corporations,
partnerships and limited partnerships acquiring title to land zoned
for residential development or acquiring multiple residential
units.

b) Builders are
advised to ensure that their standard-form agreements of purchase
and sale for sales of pre-construction condominium units and
freehold homes are updated to properly contain assurances from
buyers that they are not a non-Canadian within the meaning of the
Act. They should also confirm that the relevant provisions of such
agreements of purchase and sale adequately restrict assignments of
existing agreements of purchase and sale to non-Canadian buyers. In
this regard, builders’ sales teams should have working
knowledge of the relevant provisions of the Act such that they are
equipped to make reasonable enquiries as to the citizenship status
of a buyer. In the scenario where a buyer is a corporation,
builders are advised to “drill down” to the shareholders
of such corporation in order to satisfy themselves that they have
not contracted to sell a qualifying property to a non-Canadian
buyer. In Ontario, it is imperative that builders and their sales
teams have working knowledge of the Act both for the reasons
highlighted above as well as for the purposes of ensuring
compliance with the New Home Construction Licensing Act,
2017, as its Code of Ethics requires all licensed home
builders to comply with the laws of every jurisdiction in which
they carry on business. The failure to comply may result in fines
and/or remedial action required to be taken by licensed home
builders, as well as other potential sanctions by the Home
Construction Regulatory Authority that governs licensing and
related matters for builders and vendors of new homes in
Ontario.

c) Brokers are
advised to have working knowledge of the relevant provisions of the
Act such that they are in a position to properly advise and inform
their potential buyer clients of the restrictions on purchases of
qualifying property by non-Canadians prior to their entering into a
purchase and sale transaction. Additionally, it is imperative that
brokers have working knowledge of the Act for the purposes of their
standing before the Real Estate Council of Ontario, as an offence
committed by a broker under the Act is likely to also run afoul of
the Real Estate and Business Brokers Act‘s relevant
provisions regarding the ethics, duties and “Know Your
Client” obligations of real estate agents and brokers licensed
in Ontario.

Liability for contravention of the provisions of the Act carries
a maximum fine of $10,000 and extends to not only non-Canadian
buyers, but also those who actually or attempt to “counsel,
induce, aid or abet” a non-Canadian to purchase qualifying
property, whether directly or by way of assumption of an existing
agreement of purchase and sale, knowing that the non-Canadian is
prohibited from doing so.

As the Regulations referenced within the Act have not yet been
passed, and those Regulations are expected to contain several
clarificatory provisions regarding the operation, applicability and
prohibitions imposed by the Act, home buyers, builders and brokers
are encouraged to watch for additional information regarding the
status of the Act and its Regulations to ensure compliance with the
legislation once it comes into force.

We look forward to sharing our additional insights with you once
the above-noted Regulations have been passed.

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.

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