FOLA Writes to Ministers on the Prohibition on the Purchase of Residential Property by Non-Canadians Act

The Honourable Chrystia Freeland, M.P.
Deputy Prime Minister and Minister of Finance
Department of Finance Canada
90 Elgin Street
Ottawa ON K1A 0G5
chrystia.freeland@canada.ca
The Honourable Ahmed Hussen, M.P.
Minister of Housing and Diversity and Inclusion
P.O. Box 8777, Postal Station T
Ottawa, ON K1G 1C0
HDI.Minister-Ministre.LDI@infc.gc.ca
The Honourable David Lametti
Minister of Justice and Attorney General of Canada
284 Wellington Street
Ottawa, Ontario K1A 0H8
mcu@justice.gc.ca; David.Lametti@parl.gc.ca
Dear Ministers
Re: Proposed Regulations under Prohibition on the Purchase of Residential
Property by Non-Canadians Act

1. Overview
   As representatives of Ontario lawyers in private practice, we are writing to inform you of
   various concerns with the above legislation, currently set to come into force on January
   1, 2023 and the consultation process that was concluded last month in respect of
   regulations proposed thereunder. The consultation process was extraordinarily short and
   did not offer sufficient time for any meaningful response from the various associations
   and their members that stand to be impacted by this legislation, particularly since most
   of the legislation is to be detailed by regulation. We are hopeful you will consider and
   include these comments in the scope of the regulations being considered for
   implementation in January, should the government not revoke the statute instead.
2. Who is FOLA and What is Our Role?
   The Federation of Ontario Law Associations (FOLA), is an organization that represents
   the associations and members of the 46 local law associations across Ontario. Together
   with our associate member, The Toronto Lawyers Association, we represent
   approximately 12,000 lawyers, most of who are in private practice in firms across the
   2
   province. These lawyers are on the front lines of the justice system, and a significant
   proportion are full-time or part-time solicitors in communities across Ontario.
3. Our Concerns
   A. Ultra Vires and Jurisdictional Challenges
   The essence of this legislation is to regulate matters which fall within the Provincial
   jurisdiction of property and civil rights. Ontario, British Columbia and other provinces
   have already taken steps to impose restrictions on purchase of certain property by nonresidents and those regimes should be left in place to govern the policy matter or to
   address the Government’s goals of preserving residential inventory for Canadians.
   Threatening resident advisors with fines for participating in transactions, which can
   often occur quickly and come to lawyers already signed and contractually committed, is
   how this legislation is being perceived and may, in fact, operate in practice.
   It would not appear, from the language in the Act, that a failure to comply or to ‘knowingly
   assist’ in a purchase by a non-Canadian would be a criminal offence, requiring federal
   involvement. Without a reasonable need for federal interference, the subject matter
   should fall to the provinces to legislate based on their own needs to protect residential
   inventory as required.
   B. Advisory Offences, Enforcement & Standard of Care
   The Act appears to target real estate professionals and lawyers who fail to ‘stop’ nonCanadians from purchasing residential properties in Canada. The $10,000 maximum fine
   for these assistive parties is material and consequential. There is a possibility that many
   lawyers may simply stop assisting clients on the prospect that they ‘may’ be a nonCanadian, in particular if the means to verify control of a corporation or as a distant
   beneficiary of a trust is too onerous to confirm. This could open professionals to claims
   of human rights violations.
   The Act and regulations will create a standard of care for lawyers who are engaged in
   such transactions. In Kau v The Queen, it was held that one could not rely solely on a
   declaration from an individual as to his/her residency status, but rather the lawyer must
   make a ‘reasonable inquiry’ in the context regarding residency. This will be more
   significant in the context of a corporate purchaser where almost every shareholder will
   have to be scrutinized as to whether they are ‘Canadian’ citizens or permanent residents.
   This standard will likely only be clarified following charges being laid against lawyers who
   find themselves in such a precarious position.
   In many cases, lawyers are engaged after an agreement is signed and committed
   between purchaser and vendor. The legislation does not allow a purchaser who has
   entered into the transaction to rescind the agreement. It is unclear what the purchaser
   can or ought to do in that case. A vendor may refuse to close for fear of being subject to
   the penalties under the Act (notwithstanding language proposed that suggests a sale
   made to a non-Canadian does not invalidate the sale, it is still open for the government
   to charge the Vendor for its role in the transaction). Similarly, if a non-Canadian who,
   after committing herself to a transaction, finds out that the purchase is illegal but wants
   to close and then resell the property to divest herself of the interest, she has no redress
   to use counsel, who would be charged as facilitating the closing, even if it were to
   demonstrate compliance by immediate resale. No solicitor would want to assist in light of
   the sanction. Would the non-Purchaser in this case only have recourse to self-disclose
   3
   to the Minister and wait for the Minister to issue a sale order under the Act? This would
   not be a good use of government resources.
   In any event, it is extremely unclear how the Government would respond to these (and
   many other) gaps in how this legislation would work.
   C. Geographical and Property Scope
   One such concern relates to the scope of the legislation. The consultation paper suggests
   that regulations will identify census metropolitan areas that would be applicable to the
   scope of the prohibition. Lawyers work in the area of exact details and the jurisdictional
   boundaries of these census metropolitan areas will need to be precisely identified and
   defined with respect to each province’s land titles system and, ideally, municipal
   boundary. In many cases, the federal boundary identification standards (such as electoral
   districts, ridings, postal code areas and such) are not aligned with the actual municipal
   boundaries.
   Similarly, a suggestion that the Act would not apply to recreational properties as a
   category is not sufficient as there are a number of such properties located within census
   metropolitan areas that contribute towards tourism and other economic effects.
   The arbitrary limit of 3 or less dwelling units in a property is also a concern as it suggests
   that a non-Canadian purchaser would not be interested in larger buildings (like apartment
   buildings or condominium/strata projects) and there is no prohibition on those under the
   Act. We can envision situations such as a non-Canadian parent wanting to purchase a
   single home for her child who is studying or working in Canada; she would be precluded
   from this under the Act, and only if the child qualified under the proposed exemptions,
   would she then be able to lend the money to the child (assuming this too is not an indirect
   ownership interest). There is no clarification proposed in the consultation paper about
   situations like this.
   D. Other Exemptions
   Most of the exemptions relating to non-Canadians are mirrored in the Ontario Land
   Transfer Tax Act which imposes the non-resident speculation tax, namely the refugee
   status and work or student visa exemptions. Given the timing to get status and visas, it
   may be that the two year statutory prohibition will end before some of these exemptions
   can materialize.
   The financial threshold of $500,000 or higher, which would apply to prohibited residential
   properties, is arbitrary. As the prohibition is against certain properties in census
   metropolitan areas, there are few properties that would be available under this price point
   and, if there were, it is unclear why non-Canadians would not be prohibited from
   accessing those lower-valued properties. If the intention is to promote housing inventory
   for local residents and citizens, this financial threshold complicates the policy rationale of
   the Act.
   The notion that a non-Canadian shareholder of 3% or more of the voting control of a
   corporation renders the entire corporation incapable of acquiring residential property
   under the Act is a very low threshold. A recent regulatory threshold of 25% has been
   applied when assessing control in a corporate context, particularly to comply with
   FINTRAC guidelines.
   4
   It is unclear why certain trusts that devolve real property to beneficiaries would be caught
   by the prohibition, particularly when a trust has reached its maturity or is required to
   distribute under provincial trust laws. This raises the above concern about complexity of
   real property rights that is better left to the Provinces to regulate. A trustee would now be
   potentially liable under the Act if she administers the trust contrary to the Act but in
   accordance with the trust.
   The Act and regulations do not speak to properties that include residential premises as
   part of a larger parcel of land or a mixed use building. It is increasingly frequent to see
   ground level commercial/retail properties with one or two levels of residential housing
   above it. A non-Canadian would now be precluded from such an investment because of
   the tied residential component. Similarly agricultural properties often have housing on the
   farm for workers or family; would a non-Canadian be precluded from acquiring the farm
   in this context?
   This discussion identifies a number of possible complications with the Act that would
   require more planning and consultation rather than hastily promulgating it and leaving
   such wide gaps of interpretation open for debate, or before the Courts in the context of a
   regulatory sanction.
4. Conclusion
   This legislation has not been thoroughly thought out and the consultation process not
   vastly disseminated to provide meaningful feedback to guide prohibitions of this nature
   and with such implications for local professionals. The preference is to revoke the Act
   and if the Government feels that the policy in having such restrictions is still reasonable,
   a more fulsome dialogue would be appropriate.
   As noted, the jurisdictional issues are material and may pose a significant issue of
   constitutional validity. Clearly there are practical implications to be sorted out in its
   passage. Both reasons are sufficient to revoke the Act prior to its coming-into-force date
   of January 1, 2023 and to better prepare professionals, trustees, investors and nonCanadians who may have transactions in the works, to understand how they can comply
   or manage this without liability.
   If there is still an opportunity for further discussion, we would be pleased to arrange a
   meeting at your convenience.
   Yours truly,
   Mark Giavedoni
   FOLA Real Estate Chair