Archive for the ‘Real Estate Legal Articles’ Category

Legal issues to consider when buying a cottage

Tuesday, July 16th, 2019

Torontonians moving to rural areas for housing

Natalka Falcomer
REM

Maybe it’s the new flight service by Porter Airlines to Muskoka or maybe it’s the smog that’s prompting Torontonians to move from the hustle and bustle of the city to set up a life in cottage country. Or maybe (and more likely) it’s the cost of a home in the city.

Some Torontonians are opting out of the market to find greener (literally) pastures in the rural parts of Ontario. The math makes sense even if you decide to buy in rural Ontario and rent in Toronto. How? Homes, and therefore mortgages, outside of our urban centres are significantly cheaper than the urban core.  As an article reported in Toronto Life, if you Airbnb your cottage when you’re caught in the city, you will more than cover your mortgage and your Toronto rent.

There are, however, some caveats and critical legal and practical issues that may affect your decision.

Short-term rentals:

If you plan to put your cottage on Airbnb, be aware of noise regulations and open fire rules and your neighbours, who may not be pleased with short-term renters partying throughout the summer months. Especially if they’re out there to relax. Zoning restrictions, and not just noise by-laws, may also be in store for parts of cottage country. And don’t forget that your insurance will be sky high because you’re not living in the cottage and because you’re renting it out.

Financing:

Some other things to consider: many banks will only permit financing if the cottage has a furnace, a heated water line from the lake during winter months and a foundation in the ground and not on cinder blocks. Also, as further described below, ensure that the roads are maintained all year and that the property has a proper septic system and clean drinking water. If not, your lender may back out at the last minute. One wonders also wonders about the impact of insurance on homes near the water due to the flooding in Muskoka … stay tuned!

Easements:

Easements and rights of way are deceptively complex legal concepts and often the cause of litigation between neighbours. The point of most easements or rights of way is to ensure that adjacent properties are accessible or that views are protected. Sometimes these easements are noted on title, while in other cases they’re granted by legislation or arise out of implication. Often when there’s nothing in writing or on title, neighbours will litigate over whether or not such access rights exist. As such, if you intend on buying a cottage that needs access to its neighbouring property or if you want to protect a view, don’t assume these rights are protected. Confirm if these rights are registered on title. If not, you may be exposing yourself to unhappy neighbours or a lawsuit.

Unregistered hydro easements:

Unregistered hydro easements can be highly problematic because they permit the hydro authorities to cut through your land and prohibit you from building on the hydro easement. Case law and Hydro One’s policy requires homeowners to be financially responsible for the maintenance of wires and poles found on or near their property. To complicate matters further, such hydro easements are not found on title! You must contact the appropriate hydro authority to determine such easements.

Waterfront improvements:

Never operate under the assumption that the existing cottage or dock on a property is in line with bylaw mandates. Take, for example, a dock. The provincial Public Lands Act and federal Fisheries Act will apply if the construction of a dock impacts both the shoreline waters and fish habitat. This means that the construction of a dock may require not only municipal approval, but also federal and provincial approvals and permits. Ensure that these permits are in place before you purchase any oasis.

Property insurance:

Proximity to a fire hall can impact the rate charged for fire insurance. Typically, insurance companies focus on whether the structure is within five miles of a responding fire hall. In certain locales, insurers may not provide coverage, given lack of adequate fire protection. Get this information before an offer goes in.

Seasonal zoning:

While you may want to escape to your cottage year-round, it doesn’t mean that this is an option. Some rural residential properties are zoned “seasonal”, which means roadways are not maintained during the winter. Apart from no access during certain seasons, you may also be on the hook to provide and pay for maintenance. Seasonal zoning means that the municipality may not provide emergency services in the wintertime, which is cause for concern if you have elderly visitors or grandchildren.

Water supply:

If the water supply for the cottage is municipally provided, you’re in luck. Unlike most cottages that are supplied by well water, you don’t have to be concerned with potability. This is because there is no reliable potability certificate for well water, or water drawn from lakes or a cistern.

Wells supplying multiple properties may be subject to the Ontario Clean Water Act, and easements for pipes from neighbouring wells (if registered) may violate the Ontario Planning Act. As always, request applicable certificates and obtain warranties from the seller that the water supply is in accordance with all federal, provincial and local regulations.

Septic:

Septic systems require approval by the municipality or the Ministry of Natural Resources. Ask the sellers for such documentation. If you plan to make any additions to the cottage that affect the septic system, you are likely required to get additional approval to satisfy regulatory requirements. If you plan to rebuild and expand the cottage you plan to buy, ensure that such growth is permissible.

© 2019 REM Real Estate Magazine

KNOW YOUR SELLER

Thursday, April 18th, 2019

Legally Speaking 513 (April 2019)

Chris Johnston B.A., LL.B.
BCREA

Seller’s agents must be certain that they are dealing with the person with authority to list and sell the property. Confirming the identity and the authority of your clients may seem simple. However, in the global society today with complex deals, complicated ownerships of property and challenging deals, the pitfalls may be expanding.

Examples of situations that may result in claims or complaints against licensees include:

  • a person acting on behalf of the seller does not have a proper power of attorney to execute documents for the absent seller;
  • a licensee who has been authorized in writing to sign on behalf of the seller does not execute the contract properly (i.e. signs in the name of the seller rather than in the licensee’s own name, as agent for the seller);
  • a licensee fails to do a title search and is not dealing with the seller on title;
  • a licensee acts for a company without ensuring that she has proper authority from the corporate directors; or
  • a licensee takes instructions from an unauthorized representative of the seller such as a friend, family member or business partner without the knowledge or requisite written authority of the seller.

Predictably, these scenarios can lead to situations where the seller refuses to close and is sued by the buyer for failing to complete. In a rising market, the buyer seeks damages for any difference in value of the property, costs and expenses thrown away, specific performance and/or related damages, interests and legal costs. The licensee may be named as a party to the lawsuit with allegations of negligence for failing to ensure the contract was being signed by the proper party or for misrepresenting that they had the authority of the seller to list the property and to accept an offer of purchase and sale for a property.

In a recent decision1 of the British Columbia Supreme Court, a licensee faced this type of allegation when he was not aware that he was receiving instructions from someone other than the person on title. Although the Court found a binding contract at the end of the day and the claims against the licensee were dismissed, the stresses and expenses of a trial that lasted more than 50 days would have been extensive. The best ways to avoid such a kerfuffle include the following:

  1. When listing a property, always conduct a full title search. Know who your client is!
  2. On any listing involving a corporation, be certain to have a company search done and ask for the articles of incorporation and proof of who the officers and directors are with authority to authorize a transaction, perhaps with a Director’s Resolution.
  3. Where the seller may be absent physically or have health issues and wishes to give a power of attorney to another person, recommend your client get legal advice to ensure the form of power of attorney being used is valid and acceptable for filing with the Land Titles office and that it has not expired and/or been revoked.
  4. Consider using DocuSign or other software for secure electronic signatures with proper written consents in place for absent parties to a deal, rather than signing for them.
  5. If asked to sign for a party, be sure that the request is in writing, is genuine, and that the licensee signs in the name of the seller rather than in the licensee’s own name, and as agent for the seller.
  6. Never witness a signature that you did not actually witness.
  7. Don’t be lulled into believing that a family member has authority to make decisions for the person on title. Make sure you are getting instructions from the owner of the property and if it is someone else, that they have been granted the proper authority from the seller to sign on their behalf.

Licensees are expected to draft legally enforceable contracts and the starting point should always be to ensure that you know who owns the property and that you are dealing with the person with proper authority. An ounce of prevention is worth a pound of cure.

5 ways to protect yourself and your clients

Thursday, January 31st, 2019

Protect yourself and your clients – know the laws

Mark Weisleder
REM

I have been practicing law for over 35 years, but it seems I learn something new every day. Laws change and you need to be up to date in order to practice in a manner that protects both agents and clients. Here are five tips to assist you with what I hope will be a successful 2019.

1. Get everything in writing:

Whenever I assist a real estate agent with a claim made against them by a client, or from the regulator, a common request is to see all the signed documents –

especially written instructions from a buyer or seller whenever you are asked to make any changes on a listing, presentation of offers in a bidding war or the agreement of purchase and sale. Do yourself a favour this year to always document instructions you receive from a client, whether by a signed agreement, email or text, to make sure there is always a written record of every action you are taking, especially when prior instructions are being changed.

2. Rent control:

In Ontario, as a result of changes made on Nov.15, 2018, every new rental unit created on or after that date is no longer subject to rent controls. This means the landlord will be able to increase the rent more than the government increase in 12 months. If you act for a tenant in a new unit, you may want to consider adding a provision to the lease making it clear that any future increase will not be more than a specific amount, say five per cent, to protect your tenant.

3. Non-resident sellers:

If a seller is a non-resident, 25 per cent of the entire purchase price needs to be held back until the seller satisfies their income tax obligations relating to the sale. In some cases, this 25 per cent holdback can result in there not being sufficient funds available on closing to pay the mortgage on the property and the real estate commission. This is one of the reasons to always do the FINTRAC identification as soon as possible. By asking for a driver’s licence, you can usually determine right away that the seller will be here for closing. When the seller signing the agreement is out of the country, make sure you ask about residency as soon as possible.

4. Be extra careful with assignments:

I expect there to be more assignment deals this year, especially if buyers who purchased two to three years ago are now having difficulty closing. Make sure to make the deal conditional on lawyer approval as there are HST and other issues relating to when the original deposits and the profit are to be made payable. Also, you need to be careful to make sure that your own commission on any assignment agreement is paid as soon as the builder consents to the deal, or else you may have to wait an extra year before you get paid.

5. Get everyone to sign the buyer representation agreement:

Too many times I have seen situations where, for example, one spouse signs the buyer representation agreement and then the other spouse or an adult child goes out and buys a property, to try and avoid paying the agent their commission. Or they buy in a company name to try and hide their identity.

Make sure you always get everyone to sign your agreement, even if it means going more than once to sign, especially if one of the spouses is out of town.

© 2017 REM Real Estate Magazine

Vacancy Tax explanation from city of Vancouver

Thursday, January 17th, 2019

Will your home be taxed?

other

Each year, every owner of residential property will have to make a property status declaration. This will determine if the property is subject to the Empty Homes Tax, also known as the Vacancy Tax.

The Province of BC’s Speculation and Vacancy Tax  is in addition to the City’s Empty Homes Tax. If you own residential property in Vancouver, you may have to pay both taxes

Properties not subject to the tax

Most properties will not be subject to the Empty Homes Tax, including those:

  • Used as a principal residence by the owner, his/her family member or friend, or other permitted occupier for at least six months of the 2018 tax year
  • Rented for residential purposes for at least six months of the current year, in periods of 30 or more consecutive days
  • Meeting the criteria for one of the exemptions 

See if the tax applies to you

Exemptions and scenarios that may apply to you

This content is for informational purposes only. It is not intended as advice or a determination of whether your property will be subject to the Empty Homes Tax

If there is any discrepancy between the information provided here and the provisions of the Vacancy Tax Bylaw  (183 KB), the latter will prevail.  These changes are in effect for the 2018 reference period (January 1 to December 31, 2018.)

Exemptions:

You will not be subject to the tax if you can meet one of the exemptions listed below.

If you claim one of the following exemptions, you must be able to provide evidence that validates your declaration if asked.

Clarifications to the Vacancy Tax bylaw were made on September 18, 2018. These changes are in effect for the 2018 reference period (January 1 to December 31, 2018).

Evidence documentation is not required at the time of declaration and will only be requested if the property is selected for audit.

Exemption types

Occupancy for full-time employment

Exemption details

Examples of acceptable evidence

Your principal residence was outside of Greater Vancouver, but you occupied your property for residential purposes for at least six months because you were employed full-time in Greater Vancouver. The nature of the employment must require physical presence in Greater Vancouver.

Greater Vancouver as defined in the Vacancy Tax Bylaw (183 KB) refers to:

  • Village of Anmore
  • Village of Belcarra
  • City of Burnaby
  • City of Coquitlam
  • City of Delta
  • City of Langley
  • Township of Langley
  • Village of Lion’s Bay
  • City of Maple Ridge
  • City of New Westminster
  • City of North Vancouver
  • District of North Vancouver
  • City of Pitt Meadows
  • City of Port Coquitlam
  • City of Port Moody
  • City of Richmond
  • City of Surrey
  • Tsawwassen First Nation
  • City of Vancouver
  • District of West Vancouver
  • City of White Rock
  • University Endowment Lands
  • University of British Columbia

This exemption does not apply to properties that are being used solely as office space.

  • Address of your principal residence
  • Contact information for Greater Vancouver employer
  • Letter from Vancouver employer confirming full time employment status and required physical presence for purposes of work
Owner in care

Exemption details

Examples of acceptable evidence

Your property was unoccupied for more than six months because you or your tenant was residing in a hospital, long term, or supportive care facility and had previously been using the property as a principal residence or occupying it for residential purposes as a tenant.

This exemption does not apply to second homes that are used occasionally to receive medical care in Vancouver.

All occupants must be residing in a care facility for the exemption to apply.

 This exemption is not allowed for more than two consecutive tax years.

  • Contact information for care facility
  • Letter from care facility confirming you or your tenant is undergoing medical/ supportive care
Estate of deceased

Exemption details

Examples of acceptable evidence

The property was unoccupied for more than six months because the last registered owner is deceased and a grant of probate or administration of the estate was pending.

This exemption does not apply if a grant of administration or probate was issued by a date that would have allowed the property to have been occupied for six months of the calendar year. The property will otherwise be subject to the tax unless it was used as a principal residence or rented to a tenant or subtenant for at least six months.

Death certificate of registered owner

Transfer of property

Exemption details

Examples of acceptable evidence

Legal ownership was transferred during the reference period (the property was sold) and a new Land Title Number was issued.

The use of “transfer” is based on the definition of “transfer” in the Land Title Act, being a conveyance, a grant, and an assignment.

This exemption does not apply to properties that were issued a new Land Title Number solely because of a name or address change.

Title search or certificate of title showing the date that title was transferred

Undergoing redevelopment or major renovations

Exemption details

Examples of acceptable evidence

Your property was unoccupied for more than six months because:

  • The property was undergoing redevelopment or major renovations where permits:
    • had been issued and were being carried out diligently and without delay, or
    • were under review for redevelopment of vacant land or the conservation of heritage property.
  • Or, the property is vacant and part of a phased development which has:
    • A rezoning application under review
    • Approved rezoning with permits under review
    • Approved rezoning where construction has commenced
  • Short description of renovation/ redevelopment project
  • Building or development permit number
Strata rental restriction

Exemption details

Examples of acceptable evidence

Your property was unoccupied for more than six months because it was subject to a strata rental bylaw as of November 16, 2016:

  • that prohibited rentals or restricted the number of units that may be rented, and
  • the maximum allowable number of rentals had already been reached.

This exemption does not apply to properties where the number of permitted strata rentals decreased on or after November 16, 2016.

  • Copy of strata bylaws
  • Letter from strata council confirming the maximum number of units have been rented
  • Copy of waitlist confirming owner attempted to rent the property
Court order

Exemption details

Examples of acceptable evidence

Your property was unoccupied for more than six months because the property was under one of the following:

  • A court order
  • Court proceedings
  • An order of a governmental authority prohibiting occupancy

Actions to permit occupancy were carried out diligently and without delay, in accordance with any timelines in the order.

This exemption applies to owners who were prohibited from selling, occupying, or renting their property.

This exemption does not apply to properties that are uninhabitable due to inaction by the owner.

  • Copy of the court order
  • In cases where an order or a governmental authority prohibits occupancy, the owner must be able to show that they have acted diligently to meet the requirements of the order
Limited use residential property

Exemption details

Examples of acceptable evidence

Your property was unoccupied for more than six months because the use of the property was limited to one of the following:

  • Vehicle parking
  • A result of the size, shape, or other inherent limitation of the parcel, a residential building could not be constructed
 

 

© 2019 City of Vancouver

Tips for Buying a Home Under Probate

Tuesday, August 28th, 2018

You can get a great deal if a home is part of an estate

Leo Wilk
REW

You can get a great deal if a home is part of an estate – but there are particular conditions you should include in your offer

First, what is probate?

Probate, in short, is the court procedure for two things:

  • Official approval of the will by the court as the valid last will of the deceased; and
  • Appointment of the person (or persons) who will act as the executor of the deceased’s estate.

Essentially, it is the court process that gives the executor (or executrix) the authority to act on behalf of the deceased.

Special Subjects in Your Offer

In probate real estate purchases, because reaching probate does take some time, you can be hit with delays in the purchasing process.

When you make an offer on a home or condo under probate, you will have all your usual subjects as a buyer (inspection, financing, and so on). However, you must also have a subject for the seller that reads:

“Subject to the Seller receiving the following by _   (date)__:

“(1) a copy of a grant of probate or letters of administration that allow the Property to be sold; and

“(2) assurance that everyone entitled to claim under the Wills, Estates and Succession Act has waived or released their claims against the Property. This condition is for the sole benefit of the Seller.”

To make sure the offer does not collapse if probate is not granted by the time you have reached the subject date, you may want to add an automatic extension of the subject. This way you are covered if probate has not been granted by your subject date and you will not have to get everyone to sign an addendum. 

You may also want to add an additional clause about extending the closing date if probate is delayed. It will read something like, “If probate has not been granted by the closing date, the closing date will automatically be extended to 15 business days after probate is granted.”

Typically you will want to make this subject-to-probate date two to three months away.

What Happens Next?

Once an accepted offer is handed in to the party in charge of probate, they will expedite the file. Which means, it goes from the bottom of the pile of documents to the top at the lawyer’s office. 

Once the buyer has removed their subjects the property is technically sold. Unless something very unforeseen happens during the time the lawyers are granting probate, the property will sell. However, until the seller (the executor) removes their subject to probate, the listing will stay live. This means that, despite all the listing agent’s attempts to communicate that it is technically sold, they will still be inundated with calls and inquiries about the property.

When it comes to a probate sale, it would be wise to hire an agent who has some experience in this area, as there are many things that they know where others would not.

© 2018 REW. A Division of Glacier Media

New anonymous tipline for reporting real estate misconduct

Thursday, March 15th, 2018

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Download Document

Property Transfer Tax Calculator

Thursday, March 1st, 2018

Spagnuolo
other

The first PTT calculator is what we call our standard calculator. This is to be used if the Buyer is not a First Time Home Buyer, or if they are purchasing a used home, not a new one.

LAW SOCIETY PANEL FINDS WEST VAN LAWYER GUILTY OF WASHING $26M

Friday, May 26th, 2017

?Sea of red flags? ignored as offshore cash was allowed to float through trust account

IAN MULGREW
The Vancouver Sun

A Law Society of B.C. disciplinary panel has found a West Vancouver lawyer guilty of professional misconduct for washing $26 million through his trust account.

In the face of an overheated real estate market and public concerns about foreign capital last year, the society cited Donald Gurney over his involvement in four questionable three-year-old transactions.

The panel found he ignored a “sea of red flags” and allowed $25,845,489.87 of offshore cash to float through his trust account between May and November 2013.

He charged a 10th of one per cent of the amount, given “the risk involved.” But the panel did not find Gurney a credible witness, particularly when it came to what he knew and the calculation of his fees.

“He was evasive in that he would not answer questions put to him and was self-serving with regard to his knowledge of the law society accounting rules,” it said.

Gurney made no inquiries regarding who the lenders were, the source of the funds or the client’s use of the money from the dodgy transactions that occurred under a score of “suspicious circumstances,” the society said.

With the veneer of legitimacy he provided, that cash was beyond the usual purview of the authorities and could have been used for any purpose, including to finance crime or even terrorism.

“For a lawyer to ignore the flags that raise a reasonable suspicion and to make minimal inquiries beyond dealing with client verification and the asking of pro forma questions in the circumstances of this case leads to the inexorable conclusion that (Gurney) has committed professional misconduct,” the panel concluded in its 33-page decision.

Phil Riddell, the chair from Port Coquitlam, and Gillian Dougans, a lawyer from Kelowna, added: “This is a case in which (Gurney) has shown a gross culpable neglect to his duties to make reasonable inquiries, and we also find that (Gurney) used his trust account in the absence of providing legal services.”

A second hearing, not yet scheduled, will determine the appropriate sanction.

A disappointed Gurney said Thursday he is reviewing the decision and considering an appeal.

“We are satisfied from our inquiries that there was no impropriety or illegality associated with these transactions,” he said in a three-page statement that questioned whether the expectations of the panel were realistic.

Gurney’s lawyer Paul Jaffe said: “For the purpose of demonstrating a strong response to an industry that, it seems, involves considerable money laundering, the LSBC has gone after my client — a lawyer who, with over 49 years at the bar, who had, until now, an excellent reputation without a single disciplinary matter over his entire career — but who, according to the LSBC, failed to investigate the representations of his client — truthful ones, as it turns out — and even though this particular client has no history of any criminal, regulatory, taxation, civil, investigatory and/or any other kind of proceedings.”

The panel said the offshore funds were converted into bank drafts and Gurney knew little about the borrower, the purpose of the loans, the lenders, their businesses, their principles or the relationships.

It added that Gurney should have more closely investigated the transactions and established “why companies in Nevis/Marshall Islands/Belize would lend a total of $26 million to a newly incorporated B.C. company with, as far as he knew, no assets and no plans.”

Gurney acted for C Inc. — formed in December 2012 and whose sole shareholder as of May 1, 2013 was someone identified only as IJ — the borrower in four line-of-credit agreements.

The agreements were all unsecured, one page in length and were remarkably similar, except for the parties, the loan value and the choice of forum in the jurisdictional clause.

Gurney described his role as facilitating the receipt and disbursement of loan advances and converting the funds from U.S. to Canadian dollars.

The first transaction, involving G Capital, saw the funds deposited and Gurney issue a statement of account, purchase a bank draft payable to C Inc. and issue a trust cheque to himself to satisfy his account before he was even retained by C Inc.

The panel said there was no professional need for Gurney to be involved in the transactions that came to light during a compliance audit, a regulatory oversight check the society makes on law firms roughly every six years.

He also had no background in securities law or offshore banking. Gurney’s practice included some commercial real-estate work, conveyancing and a smattering of foreclosures.

He has an active commercial lending practice acting for mortgagors and mortgagees, the panel noted, including three mortgage investment corporations that are winding up after having had $30 million to $35 million to loan out to the private sector at their peak.

The law society maintained at the January hearing it was of fundamental importance that lawyers ensured their trust accounts and solicitor-client privilege were not misused.

Because they are exempt from the usual money-laundering laws, the legal watchdog maintained lawyers exercised a gatekeeper function and must properly scrutinize trust-account transactions.

The panel agreed: “Prior to the lawyer becoming involved in a transaction, if there is a reasonable suspicion that the transaction may involve illegal activities in Canada or abroad the lawyer has a duty to make reasonable inquires … one would have to ignore the sea of red flags that were raised by these transactions.”

© 2017 Postmedia Network Inc

Permanent immigration to get easier for French and English speakers, those with Canadian siblings

Friday, May 19th, 2017

other

In an effort to attract more skilled foreign talent, Canada is making it easier for applicants with siblings in Canada and those who are bilingual in French and English to immigrate permanently. As of June 6, 2017, qualifying applicants will receive an advantage in Express Entry, Canada’s online system for inviting immigrants to apply for permanent residence in Canada.

Canada’s Express Entry system assigns a points ranking to foreign nationals interested in coming to Canada. Draws occur at regular intervals based on points. Competition to come to Canada is steep, and the points score is based on age, language ability, Canadian and foreign work experience, and numerous other factors. Applicants who want to come to Canada are always seeking ways to improve their score, whether improving their language ability, undertaking additional education, or obtaining a job offer.

Applicants with strong French and English skills will now receive a significant advantage in Express Entry: up to additional 30 points. French-speaking individuals moving to provinces other than Quebec have been able to obtain temporary immigration for the last year under the Mobilité francophone program, which allows for up to two year work permits. However, many of those applicants now have the option of applying for permanent residence, and setting themselves apart from others in the Express Entry pool with the benefit of these new points systems.

Those applicants with Canadian or permanent resident siblings will also receive an advantage of 15 points, provided the sibling is at least 18 years old and lives in Canada.

These additional changes will result in numerous applicants being invited to apply to Canada’s permanent immigration programs. It will also aid employers in hanging on to key foreign talent, and boost the francophone population of Canada.

The changes are welcome. Family reunification is one of the key goals of Canada’s immigration legislation. The provision of points for siblings is a recognition of the crucial role that family plays in the success of a new immigrant, and of that new immigrant’s chance of remaining in Canada after obtaining permanent resident status.

This isn’t the first time Express Entry points have changed. In November 2016, applicants with Canadian post-secondary education obtained a between 15 and 30 point bonus and those senior executives and others with a more than one year job offer a between 50 and 200 point bonus. These points benefits remain in place, and benefit graduates, NAFTA professionals, and intra-company transferees.

For more information on Express Entry and Canada’s immigration programs, both temporary, permanent, and family, contact a member of our Immigration Practice Group.

©2017 Alexander Holburn Beaudin + Lang LLP

B.C. court rules notary public is responsible for tax owed by buyer

Monday, May 8th, 2017

Irina Sfranciog and Rachael Segal
REM

In Canada, resident sellers of a principal residence are usually eligible for an exemption from the capital gains tax that would otherwise be triggered by the sale of a principal residence. Non-resident sellers must pay a capital gains tax of 25 per cent on the profits from the sale of a residential property.

In Mao v Liu (2017 BCSC 226), the court was asked to determine whether a notary public was negligent and therefore obligated to pay the capital gains tax triggered by the sale of a residential property. The negligent act in question was the notary public’s failure to confirm whether the seller was a Canadian resident.

The facts underlying the Mao v. Liu action were relatively straightforward. In the period following the execution of the Agreement of Purchase and Sale for a residential property, the lawyer for the seller was asked for but refused to sign a statutory declaration regarding the residency of the seller. Upon closing, with no clearance certificate and no holdback in the Agreement of Purchase and Sale, the Canadian Revenue Agency required that the buyer pay the capital gains tax owing in the amount of $695,000. The buyer then sued the notary public seeking damages associated with this payment.

This case turned upon the question of whether the notary public had a duty to make further inquiries to determine the residency of the seller and whether that duty was breached.

In the decision, Justice Affleck stated: “In my view the defendants agreed to make the ‘reasonable inquiry’… but failed to do so, and failed to advise the plaintiffs of their potential tax liability.” Ultimately Justice Affleck found the notary public liable to the buyers for the full amount of the capital gains tax triggered by the sale of the property.

The law is clear that buyers are required to be diligent and make reasonable inquiries to ascertain the tax residency status of sellers. If the buyer fails to make reasonable inquiries, the buyer and his or her agent can be assessed for the entirety of the capital gains tax.

Conducting fulsome due diligence at the outset of a real estate transaction cannot be disregarded, as the penalties for failing to do so can be significant. It is now possible that a court could find that notaries’ public and real estate duties go beyond general inquiries and must determine whether there are any potential liabilities for their clients. This duty puts the onus on both buyers and their agents and representatives to ensure specific inquiries are made that previous to this decision, would have been expected only from a lawyer.

Determining the residency status of the seller should be completed well before the closing date and should go beyond a simple conversation. It would be prudent for buyers and their agents to request that evidence of the seller’s residency status be a condition of the purchase. Alternatively, agents should also consider a clause in their retainer agreement releasing the agent of all liability associated with any unpaid taxes after “reasonable inquiries” have been made. The problem with this is that the purchaser, the party in the transaction who should be held at the lowest possible standard when it comes to assessing risk, would still remain liable to CRA for the unpaid taxes. While buyers are able to withhold a portion of the purchase price in situations where the seller is known to be a non-resident, an avenue to withhold part of the purchase price when the seller’s residency is unknown should be adopted as well.

Whether you are an agent or a buyer, the bottom line in buying real estate in Canada is to take extra precautions when purchasing from a non-resident. Be certain to ascertain the legal residency status of sellers prior to the closing date.

© 2017 REM Real Estate Magazine