Impending ban on residential real estate purchases by non-Canadians: What buyers, builders and brokers need to know
The Prohibition on Purchase of Residential Property by Non-Canadians Act (there “Law”) will come into effect on January 1, 2023, as one of several measures adopted by the federal government to target soaring housing prices, increase supply and curb speculation by foreign investors. With few exceptions, the Act will place a two-year ban on the purchase of virtually all types of residential property (including, but not limited to, condominium units and freehold homes prior to construction, and possibly vacant land zoned for residential development in certain geographic areas) by persons who are not Canadian citizens or permanent residents of Canada. The prohibition will also apply to companies that are not incorporated in Canada or controlled by Canadian citizens or permanent residents of Canada within the meaning of the Regulations of the Act (collectively, “non-Canadians”).
Although the law provides a detailed (although currently incomplete) breakdown of the law’s applicability to certain individuals, companies and types of property, this article focuses on the main aspects of the legislation and the steps that buyers, builders and brokers should consider when buying, selling or advising on buying and selling qualifying property. The Act does not apply to non-Canadians who enter into or assume liability under contracts of purchase and sale before January 1, 2023, and therefore imminent purchases of eligible residential property will likely not be affected by the Act . However, existing purchase and sale agreements and assumptions of purchase and sale agreements entered into by a non-Canadian on or after January 1, 2023 will remain valid and the transaction may be completed. That said, we would like 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 buying company they control and which the Act considers a non-Canadian, as the Act empowers the court to order the sale of the property acquired under the conditions it deems appropriate. The law provides that in no event shall the proceeds of this court-ordered sale exceed the purchase price paid for the property. Thus, a non-Canadian buyer will have suffered a significant financial loss after taking into account the “closing costs” incurred in connection with this purchase in addition to the penalties and consequences detailed below, the most significant of which in Ontario is real estate transfer tax. and municipal land transfer tax for properties located in Toronto. Therefore, a non-Canadian purchaser will have suffered a significant financial loss at the start of a delinquent transaction without being entitled to the increased value of the property acquired after having blocked potentially large sums of money via deposits for several years in the context of the pre-construction houses.
While the Regulations are expected to contain more specific restrictions regarding investments in qualifying property that can and cannot be made by non-Canadians, purchasers should keep in mind that these restrictions could potentially restrict investment by non-Canadians in corporations, partnerships and limited partnerships that acquire title to land zoned for residential development or the acquisition of multiple residential units.
b) Builders are advised to ensure that their standard purchase and sale agreements for the sale of pre-construction condominium units and freehold homes are updated to properly contain buyer assurances that they are not not non-Canadians within the meaning of the Act. They should also confirm that the relevant provisions of such purchase and sale agreements adequately restrict assignments of existing purchase and sale agreements to non-Canadian purchasers. In this regard, builder sales teams should have a working knowledge of the relevant provisions of the Act in order to be able to make reasonable inquiries into a buyer’s citizenship status. In the event that a buyer is a corporation, builders are advised to “drill down” to the shareholders of that corporation to ensure that they have not committed to selling an eligible property to a non-Canadian buyer. In Ontario, it is imperative that builders and their sales teams have a working knowledge of the Act, both for the above reasons and to ensure compliance with the New Homes Building Permits Act, 2017, as its code of Professional ethics require all licensed home builders to comply with the laws of each jurisdiction in which they operate. Failure to comply may result in fines and/or corrective action to be taken by licensed home builders, as well as other potential penalties by the Home Building Regulatory Authority which governs licensing and related issues for builders and sellers of new homes in Ontario.
vs) Brokers are advised to have a working knowledge of the relevant provisions of the Act in order to be able to advise and properly inform their prospective purchasing clients of the restrictions on purchases of qualifying goods by non-Canadians before they enter into a buy and a sell transaction. In addition, it is imperative that brokers have a working knowledge of the Act for the purposes of their status before the Realty Council of Ontario, as an offense committed by a broker under the Act is likely to go also against Real Estate and Commercial Brokers. relevant provisions of the Act regarding the ethics, duties and “know your client” obligations of licensed real estate agents and brokers in Ontario.
Liability for contravening the provisions of the Act is punishable by a fine of up to $10,000 and extends not only to non-Canadian purchasers, but also to those who actually or attempted to “advise, induce, aid or abet” a non-Canadian to purchase a qualifying property. , whether directly or by assuming an existing agreement of purchase and sale, knowing that a non-Canadian is prohibited from doing so.
Since the regulations referred to in the Act have not yet been enacted and these regulations are expected to contain several clarifying provisions regarding the operation, applicability and prohibitions imposed by the Act, homebuyers, builders and brokers are encouraged to seek additional information regarding the state of the Act and its regulations to ensure compliance with the legislation once it comes into effect.