Prohibition on Non-Canadians purchasing residential property – More potential unexpected commercial impacts
On January 13, 2023, we wrote about some of the potential unexpected commercial impacts arising from the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) and the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations (the “Regulations”).
Since that post, additional unexpected commercial impacts of the Act and Regulations have been identified, particularly with respect to the definition of “purchase” defined in section 4(1) of the Regulations. In our previous post we noted that a “purchase” includes “the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property”.
The broad ambit of the words “legal or equitable interest or a real right”, together with the broad definition of “residential property” (which as we previously wrote, includes certain lands with mixed use zoning), would appear to extend to a number of types of commercial transactions which appear unrelated to the stated intention of the Act. In particular, a strict application of these definitions would appear to capture and prohibit the following scenarios:
- A “non-Canadian” entering into a commercial lease or acquiring easement rights in respect of a mixed use property;
- A “non-Canadian” lender lending and taking a mortgage on a mixed use property. Although section 4(2)(d) of the Regulations carves out transfers resulting from the exercise of security interests or secured rights by secured creditors from the definition of “purchase”, there is no carve out for the actual taking of a mortgage or other security interest;
- The purchase by a “non-Canadian” of commercial “strata lots” within properties zoned for mixed use (typically found in British Columbia); and
- In co-ownership or partnership scenarios, a few potential impacts exist:
- An existing “non-Canadian” co-owner or partner of a partnership that owns “residential property” may be unable to increase their equity investment in either a single property or a portfolio of properties; and
- An existing “non-Canadian” co-owner or partner of a partnership that owns “residential property” would be restricted from exercising liquidity rights under the applicable co-owners agreement or partnership agreement. In addition, a Canadian co-owner or partner may find that some of these contractual liquidity rights now have limited value as against their “non-Canadian” co-owner or partner. The exercise of these rights may be precluded by the fact that the “non-Canadian” co-owner or partner is unable to acquire the underlying rights in the “residential property”.
The significant expansions of the scope of the Act into these types of commercial transactions, which go far beyond residential housing and the housing market in Canada, introduce further uncertainty about the application of the Act and the Regulations and the ability of commercial actors to deal with properties which would not typically be considered “residential”. It is strongly recommended that anyone who is potentially impacted seek legal advice immediately. The McCarthy Tétrault real property, and trade groups are available to assist parties across Canada and can be reached at the contacts below.