Property rights fall under the jurisdiction of the provinces of Canada and each province or territory has its own legislative scheme governing the ownership of land.
An interest in land may be either a freehold interest or a leasehold interest. A fee simple interest, a type of freehold interest, is the highest category of ownership in Canada and effectively confers absolute ownership. A leasehold interest is an interest less than freehold and is characterized by a right of exclusive possession and use of land for a limited or terminable period of time.
An owner of an interest in land can also give rights to third parties, such as granting an easement for a right of way. Easements are typically non-exclusive rights to use land for the benefit of adjacent land and if registered are binding on successors in title to the properties.
Interests in land can be divided and concurrently owned in any proportion by one or more parties.
Last modified 22 Mar 2024
The new federal Prohibition on the Purchase of Residential Property by Non-Canadians Act prevents non-Canadians from purchasing residential property directly or indirectly for two years starting on 1 January 2023. The prohibition does not apply to Canadian citizens, permanent residents and certain qualifying temporary residents of Canada. The prohibition applies to both non-Canadian individuals purchasing residential property and privately held corporations and other entities indirectly or beneficially owned by non-Canadians. The prohibition only applies to properties which are located in a census agglomeration or census metropolitan area. The prohibition also applies to properties which do not contain a habitable dwelling but are zoned for residential use or mixed use and are located in a census agglomeration or census metropolitan area.
Additionally, some provinces have adopted additional property transfer taxes on the purchase of Canadian residential real estate by non-residents of Canada.
Additionally, the Canada Revenue Agency (CRA) requires purchasers of real estate from non-resident vendors to hold back a portion of the gross purchase price (typically 25% but can rise to 50% if the property generates rental income) and remit the same to the CRA unless the non-resident vendor obtains a ‘clearance certificate’ from the CRA verifying that the non-resident vendor has made arrangements for the payment of any resulting tax. Conversely, the non-resident vendor has an obligation to notify the CRA about the disposition either before it happens or not later than 10 days after the disposition.
Last modified 22 Mar 2024
Pre-emption rights are not imposed by statute. However, property owners can grant rights of first refusal to other parties in relation to the sale of real estate by way of contract. Pre-emptive rights can be registered on title to the property.
Last modified 22 Mar 2024
Each Canadian province and territory has its own separate legislative regime in relation to the ownership of land and the various available tenures.
All Canadian provinces and territories with the exception of Newfoundland and Labrador, Prince Edward Island, Quebec and some portions of Ontario, have a Torrens system of land ownership which is a titling system operating on the principle of ‘title by registration’. The Torrens system effectively does away with the need for a chain of title (ie tracing title through a series of documentary instruments).
Newfoundland and Labrador, Prince Edward Island and some portions of Ontario operate under the Registry system of land ownership. The Registry system provides a means for recording documents that evidence title interests but, unlike the Torrens system, does not provide a definitive statement with respect to ownership or title.
Quebec is unique in that it is a civil law jurisdiction rather than common law jurisdiction and employs a cadastre system.
Last modified 22 Mar 2024
The general laws applying to transfer of title do not differ based on the nature of the real estate involved. However, each province or territory may have laws which impact the form and content of agreements of purchase and sale or impose disclosure requirements, taxes or other requirements with respect to the conveyance of certain kinds of real property.
For example, in some jurisdictions, vendors of real estate that has been used for certain industrial or commercial purposes must provide an environmental site profile to prospective purchasers.
Last modified 22 Mar 2024
The transfer of real estate to a purchaser is recorded in writing on prescribed statutory transfer forms and lodged with the provincial or territorial government department responsible for maintaining the register of land ownership.
Last modified 22 Mar 2024
All land in private ownership is registered in the relevant provincial or territorial land registries.
Land which is not in private ownership (owned by a provincial government or the federal government) is typically referred to as ‘Crown land’ and may or may not be registered in the relevant land registries.
Yes, a buyer must register a transfer of the land in order to become registered as owner of the land and prove title to the property in the future. Registration should therefore take place as soon as possible after the transfer.
Once registered, the details of ownership of the land and certain title documents are made available on a public register.
Title insurance exists in Canada, but has historically been viewed as unnecessary in the Torrens system jurisdictions that provide protection to purchasers once registration has occurred. However, title insurance is becoming increasingly common in Canadian jurisdictions as a less expensive alternative to a certified survey typically required as a prerequisite to real estate financing.
Last modified 22 Mar 2024
After reaching agreement on the purchase price and other fundamental terms of the transaction, the parties negotiate and enter into a formal contract of purchase and sale. There will usually be a period of time between the date of contract and the date that money is paid and title transfer takes place, called ‘closing’ or ‘completion’. The contract will set out the documents that must be entered into at closing, including the formal transfer and any other related documentation.
Last modified 22 Mar 2024
Yes. It is customary for the buyer to be entitled to a period of time after signing the contract, known as a 'due diligence' period, in which to conduct investigations of the property and during which the buyer may withdraw from the transaction. The contract should specify the length of the due diligence period (usually in the range of 30 to 90 days) and the scope of documents and information that must be provided by the seller to the buyer before or during this period.
If the contract does not provide for a due diligence period, the buyer should conduct its due diligence investigations prior to signing the contract. As part of its due diligence investigations the buyer will, with the aid of its counsel, review the title report prepared by the buyer’s counsel, the charges and encumbrances registered on title to the property, any survey, seller searches, permits, environmental reports and physical condition reports and all contracts affecting the property, including:
Last modified 22 Mar 2024
Consent is generally required from anyone who has lent money to the seller and has a security interest in the property being sold unless the mortgage is to be paid off in accordance with its terms at closing (which is, in fact, the most common scenario). Consent may be required from the landlord if the land is leasehold. The holders of any rights of first offer or first refusal affecting the property will have to waive or fail to exercise their rights. In addition, it is not uncommon that the sale or purchase of a property where one or more of the parties are a public company contains a condition that the transaction must first be approved by the company’s board of directors. Spousal consent is required in some provincial jurisdictions in connection with the sale of a matrimonial home.
Last modified 22 Mar 2024
In almost all situations, a contract for the sale of land must be in writing and signed by each party to be enforceable. In addition, it must contain certainty on the description of the land being sold, the purchase price and the identity of the parties. Finally, as with all contracts, there must be exchange of something of value, called ‘consideration’.
A typical contract includes all relevant commercial details such as the real estate being sold, the purchase price, deposit, date for completion, representations and warranties.
Contracts also typically contain one or more conditions for the benefit of either party which must be satisfied or waived before a transaction becomes legally binding on the parties, often referred to as a ‘firm deal’.
Contracts may also contain provisions regarding how the property will be managed between execution of the contract and completion, and how income and outgoings will be allocated between the buyer and seller at the date of completion.
Contracts also contain provisions relating to the passing of risk and insurance issues and what happens if the property is damaged before completion.
Most provinces and territories have industry-body-approved standard contracts of sale for residential property and in some cases for commercial property. These standard form contracts, particularly contracts for residential property, are widely used. In the residential context, it is common that the contract of purchase and sale is completed by realtors before the parties’ lawyers are involved.
However, for complicated assets or high value transactions, specifically tailored contracts are used in lieu of the industry body approved forms.
Last modified 22 Mar 2024
Seller’s warranties are generally not provided under statute and the seller and buyer will negotiate the extent of any seller’s representations and warranties when negotiating the SPA.
Last modified 22 Mar 2024
A misrepresentation by the seller will typically entitle the buyer to claim damages. Where a representation goes to the very heart of the contract, its breach will also entitle a buyer to terminate the contract. Typically, the buyer’s remedies will be limited to termination of the SPA, refunding of the deposit and/or a damages claim if the misrepresentation is discovered prior to closing and, if discovered after closing, to monetary damages which may be limited in amount by the terms of the SPA.
Last modified 22 Mar 2024
Town planning (zoning), construction and environmental laws may all apply. The buyer should also consider the level of compliance with workplace health and safety legislation requirements. Proper due diligence by a buyer should cover these particular areas of concern.
As part of its due diligence, the buyer will wish to request a municipal comfort letter confirming that the property is being used in compliance with any issued permits and that the property is not subject to any notices of violation or unpaid orders issued by any such authority.
Last modified 22 Mar 2024
The responsibility of property owners for prior contamination is governed by the laws of the province or territory in which the property is situated. Environmental legislation in most jurisdictions cast a wide net of liability on current and previous owners and operators of sites, with various exceptions. Accordingly, previous environmental contamination is an important deal risk to many real estate transactions. Buyers should investigate and take careful note of any environmental issues and should seek to apportion liability and/or adjust the purchase price in relation to any risks identified.
Last modified 22 Mar 2024
Proper due diligence enquiries include investigations as to the lawfulness of the present and/or proposed use of the property from a planning/zoning prospective.
This aspect of due diligence will typically involve review of the relevant municipal zoning by-law or development plan and communication between the buyer and the relevant local authority regarding the current degree of compliance with zoning, permits, fire or health safety measures. In some circumstances, buyers will engage specific consultants to deal with planning/zoning.
Where a buyer wishes to change the use to a use not currently approved from a zoning/planning perspective (and does not wish to assume the risk of securing approvals after acquiring the land), then the buyer may wish to make the contract conditional upon appropriate development approvals being obtained before completion.
Last modified 22 Mar 2024
In the case of proposed developments, zoning by-law amendments, demolitions or other uses of property that require some approval or permit from local authorities, it is common that the relevant local authority will impose conditions to the issuance of such approvals or permits.
The conditions often impose requirements on developers to comply with certain obligations including, for example, the making of payments, the carrying out of public works and the performance of required infrastructure works. These obligations may be secured by a registration of a covenant on title to the property granted by the developer to the local authority.
Last modified 22 Mar 2024
All levels of government in Canada (local authorities, provincial and territorial governments, and the federal government) have certain powers of compulsory acquisition where the acquisition of land is necessary for certain public purposes.
Affected land owners have rights to ensure procedural fairness including the right to notice, appeal and compensation.
Last modified 22 Mar 2024
Goods and Services Tax (GST) is a federally imposed tax payable at a rate of 5% on the gross purchase price on most real property transactions. Some provinces have a Harmonized Sale Tax (HST) Regime such that a tax of 10-15% of the gross purchase price is imposed instead of the 5% GST. There are several exceptions, most notably in the purchase of used residential property for which GST/HST is not payable. Buyers of commercial properties who are registered for GST/HST purposes on the closing date will also generally be entitled to an offsetting tax credit for the GST/HST payable. As a general rule, the seller must collect and remit the GST/HST to the relevant authority.
GST/HST is also payable on commissions charged by realtors, which is typically deducted from the purchase price on closing.
In addition to GST/HST, the provincial land registries impose a tax on the transfer of registered ownership of real property at a typical rate of 0.5-2% depending on the fair market value of the land being transferred, or at a higher rate in some jurisdictions if the buyer is a non-resident of Canada. This tax is payable by the buyer and there are certain exemptions that may be available.
Finally, the sale of real property may trigger an obligation on the part of the seller to pay taxes on the capital gain or income earned by the Seller in respect of the sale of the property.
Last modified 22 Mar 2024
GST/HST is not payable on the sale of shares of a company. Furthermore, property transfer tax is not payable on the sale of shares of a company, as there is no change in registered ownership in the land registry. For this reason, it is common for real estate to be held in the name of a bare trustee company and for the acquisition of real estate to be structured as a transfer of beneficial ownership of the property and the acquisition of the shares of a bare trustee.
The sale of shares of a company can also trigger an obligation on the part of the seller to pay taxes on the capital gain or income earned by the seller in respect of the sale share.
Last modified 22 Mar 2024
Do mandatory pre-emption rights apply to the sale of real estate assets in this country?
Pre-emption rights are not imposed by statute. However, property owners can grant rights of first refusal to other parties in relation to the sale of real estate by way of contract. Pre-emptive rights can be registered on title to the property.
Last modified 22 Mar 2024