THE NEW LAW ON PROHIBITING FOREIGN HOME BUYERS-WHAT DOES IT MEAN?
Canada’s Parliament recently passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) which prohibits the purchasing of residential real estate by non-residents, directly or indirectly for a two-year period beginning January 1, 2023. This means that non-citizens, non permanent residents or foreign corporations cannot purchase residential real estate during this two-year period. Under the Act, every non-Canadian that contravenes the Act and every person or entity that “counsels, induces, aids or abets or attempts to counsel, induce, aid or abet” the contravention of the Act is guilty of an offence and is liable on summary conviction of a fine of $10,000.00. On the face of it this will include everyone from realtors, lawyers, mortgage agents and other professional advisors. It is therefore important to proceed carefully if you are dealing with someone who could be a foreign buyer to avoid possible fines.
For the purposes of the Act, a non-Canadian is defined as:
- an individual who is not:
- a Canadian citizen
- a person registered as an Indian under the Indian act or
- a permanent resident of Canada
- a corporation that has not been incorporated in Canada
- a corporation incorporated in Canada that is controlled by foreign corporations or foreign individuals and
- a prescribed person or entity pursuant to regulations
Non-Canadians will not be able to purchase detached houses or similar buildings that contain up to three dwelling units. Semi detached houses, row house units, residential condominium units, or any part of these buildings that are intended to be owned separately from other units in the building are also captured. Detached houses that contain more than three dwelling units are not captured by the Act.
Exemptions from the Act are:
- temporary residents within the meaning of the Immigration and Refugee Protection Act
- non-Canadians who purchase residential property in Canada with their spouse or common law partner if the spouse or common law partner is:
- a Canadian citizen;
- a person registered as an Indian under the Indian act or
- a permanent resident of Canada and
- foreign states that purchase residential property in Canada for diplomatic or consular purposes.
Keep in mind that transactions dated before January 1, 2023 are excluded from the Act.
As previously mentioned, there are fines for contravention of the Act. In addition, the Superior Court of the province in which the residential properties located may order the property to be sold in a manner and with conditions as set out in the regulations. Upon a court ordered sale of the property, the non-Canadian purchaser would not receive more than the amount paid for the property and may receive even less.
The offence provision imposes a broad range of liability that is not limited to the parties to the Agreement of Purchase and Sale. However, it is unclear as to what circumstances a non contracting party is deemed to have been counseling, inducing, aiding or abetting the contravention of the Act. My suggestion to realtors is that they obtain either a passport, citizenship card or permanent residence card from all buyers to ensure that they are not caught by the Act.
Another important point is that an Agreement of Purchase and Sale that does not comply with the Act will not be deemed invalid simply due to the contravention of the Act. As such, the contracting parties will still be required to comply with their contractual legal obligations. Therefore, it may be prudent to include contractual provisions confirming whether the purchaser is a resident of Canada within the Act. Related parties such as real estate agents, developers, mortgage agents and lawyers are advised to inform their employees or staff of the requirements of the Act to avoid potential liability by inadvertently entering into agreements with non-Canadians.
Some have expressed the opinion that this new legislation may face a constitutional challenge on the basis that property rights fall under the purview of provincial governments and not under the jurisdiction of the federal government.
Time will tell.