Written by Me Clément Lucas
This column discusses the Non-Canadian Residential Real Property Purchase Prohibition Act¹ (“Act”). The Act is scheduled to come into force on January 1, 2023. This column deals more specifically with the situation of non-Canadians who signed a promise to purchase before this date but whose sale is planned afterwards. It has been updated following the verdict rendered on January 31, 2023, for which a certificate of no appeal was issued on March 27, 2023.
THE ACT
The purpose of the Act is to prohibit foreign commercial enterprises and persons who are neither Canadian citizens nor permanent residents from acquiring non-recreational residential real estate in Canada for a period of 2 years (from January 1, 2023, to December 31, 2024).
To fight inflation and slow down real estate speculation, the federal government announced in December 2021, as part of its “housing policy”, a temporary ban on the purchase of residential property in Canada by foreigners. However, the Act was not adopted until much later, with more specific wording.
The Act provides that the By-law may prescribe what constitutes a “purchase” for the purposes of the prohibition, as well as define the term “contract”. The Act also allows the By-law to further prescribe what constitutes a “non-Canadian“. The definition of these concepts is necessary to clarify the scope of the prohibition, including its application to purchases of residential real property made through structures such as corporations, trusts and other entities.
The notion of "purchase”
The Act establishes that the prohibition applies to the purchase of residential real property by non-Canadians, directly or indirectly. The objective of the policy is to establish a comprehensive definition of purchase that reflects the fact that non-Canadians may structure their purchases directly or through vehicles such as corporations, partnerships, trusts or other entities.
The Government also recognizes that there may be certain circumstances arising from transitional or life events where the application of the prohibition could result in undue hardship that is unforeseen or unavoidable. For example, there may be situations where non-Canadians acquire residential real property as a result of unforeseen life events or other arrangements determined before the prohibition comes into effect.
- acquire or grant, conditionally or unconditionally, a legal or equitable interest or real right in residential property, including, in Quebec, a right or co-ownership, superficies, usufruct or emphyteusis.
The acquisition by a non-Canadian of the contract of a corporation or entity that holds an interest or in Quebec a real right in a residential immovable constitutes a purchase for the purposes of the Act and this Regulation.
A “purchase” would not include:
- the acquisition by an individual of an interest, or for Quebec, of a real right in real property, arising out of succession (in the form of a will or an estate or by reason of the death of a co-tenant);
- the acquisition by an individual of an interest, or for Quebec, a real right in real property, arising from a divorce or separation;
- the rental of a dwelling to a tenant for the purpose of occupancy by the tenant;
- the transfer of an interest to an individual under the terms of a trust created before the Act came into force;
- an order to foreclose a mortgage, charge or lien registered before the prohibition came into force.
For greater certainty, this definition would apply to conditional offers or agreements to purchase residential real estate, leases structured to include purchase options, and purchases involving the use of designated purchasers.” (Emphasis added)
THE STATUS OF THE QUESTIONS
The Act has a potential impact on all preliminary contracts (to real estate sales) entered prior to the sanction of the Act (June 23, 2022), but which are intended to have effect after the Act’s impending coming into force (“Contracts“). Does it apply to such Contracts?
More broadly, can a preliminary contract entered into after June 23, 2022, give rise to a notarized contract of sale on or after January 1, 2023? This last question is relevant to many real estate developments across Canada.
Some express the view that “If a promise to purchase and a deed of sale are signed before January 1, 2023, the person will not be subject to the prohibition on purchase. But if the promise to purchase is signed before the effective date and the person becomes a homeowner after January 1, 2023, he or she will be subject to the moratorium “.
Several of them argue that the exemption provided for in section 4 (5) of the Act is such as to exclude Contracts and generally any preliminary contract concluded before its entry into force even if the sale itself is to be notarized or otherwise formalized during the moratorium period.
There was therefore a controversy in the legal community, which could have been resolved by the publication of the By-law.
Failing to do so, these issues have been brought to the attention of the Superior Court of a declaratory judgment procedure.
OPINION
The Act is unambiguous when it states in section 4 that:
“(1) Despite section 34 of the Citizenship Act, it is prohibited for a non-Canadian to purchase, directly or indirectly, any residential property,” subject to “(3) … prescribed conditions.” (Emphasis added)
Thus, even an indirect purchase through a corporation controlled by a non-Canadian is subject to this.
EXEMPTION
“Non-application
(5) Subsection (1) does not apply if the non-Canadian becomes liable or assumes liability under an agreement of purchase and sale of the residential property before the day on which this Act comes into force.» (Emphasis added)
The English version of 4(5) refers to an “agreement of purchase and sale“, which in Common Law means a “promise to sell“, followed by a “closing“; the English version thus appears to refer to a promise to sell, which is the intended interpretation, and which would give practical meaning to the said subsection 4(5) of the Act.
ACQUIRED RIGHTS
Alternatively, the undersigned submits that the Act would, by its application to Contracts, have the effect of calling into question the rights acquired by both the seller and the promisor-buyer.
In this respect, the Act contains no indication as to its application in time other than to indicate that it will come into force on January 1, 2023, and that it will be repealed two years later.
It should be noted that the Contracts were entered into prior to the Act being assented to and that at that time the Citizenship Act prevailed ¹², and still prevails as of the date hereof, which states as follows:
” Rights
34 Subject to section 35:
(a) a non-citizen may acquire, hold or dispose of real or personal property of any kind in the same manner as a citizen;
(b) a non-citizen may convey title to real or personal property of any kind directly, or through an intermediary, or by succession, in the same manner as a citizen.
Prohibition or limitation towards non-Canadians
35 (1) The Lieutenant Governor in Council of a province, or a person or authority designated by the Lieutenant Governor in Council, may, subject to subsection (3), prohibit, annul, or restrict in any manner the direct or indirect acquisition by non-citizens, or by corporations or associations that are in fact controlled by non-citizens, of interests in real property in the province.
Regulations
(2) The Lieutenant Governor in Council may make regulations defining:
(a) transactions that constitute an acquisition, directly or indirectly, of interests in real property in the province;
(b) what constitutes a body corporate or association in fact controlled by non-citizens;
(c) the concept of association.
Reserve
(3) Nothing in subsections (1) and (2) authorizes the Lieutenant Governor in Council, or a person or authority designated by the Lieutenant Governor in Council, to make decisions or take action to:
(a) apply real property restrictions to permanent residents as defined in subsection 2(1) of the Immigration and Refugee Protection Act;
(b) obstruct the enforcement of any international obligation imposed on Canada by law, custom or convention;
(c) discriminate between non-citizens on the basis of nationality, except where Canada’s international obligations under law, custom or convention require preferential treatment of non-citizens;
(d) prevent any foreign state from acquiring real property situated in a province for diplomatic or consular use;
(e) apply the real property restrictions to investments in respect of which the Minister is of the opinion, or is deemed to be of the opinion under the Investment Canada Act, that they are likely to be of net benefit to Canada. (Emphasis added)
On the other hand, it is undeniable that the application of the Act to the Contracts would call into question the rights resulting therefrom, which would, in the opinion of the Plaintiff, contradict the principle of respect for acquired rights.
The Interpretation Act ¹⁴ (federal) provides some guidance as follows:
Expired and replaced enactments
(2) For the purposes of this Act, an enactment that has been replaced is repealed and an enactment that has ex- pired, lapsed or otherwise ceased to have effect is deemed to have been repealed.
Repeal and Amendment
Pouvoir d’abrogation ou de modification
42 (1) Il est entendu que le Parlement peut toujours abroger ou modifier toute loi et annuler ou modifier tous pouvoirs, droits ou avantages attribués par cette loi.
Effect of repeal
43 The repeal, in whole or in part, does not: […] c) affect any right, privilege, obligation or liability ac- quired, accrued, accruing or incurred under the enactment so repealed » (Nos soulignés)
On this subject, author Pierre-André Côté states the following ¹⁵:
391. “With respect to the effects of repeal, the Interpretation Acts confirm or modify some common law rules and are silent on others: … 2. The principle of grandfathering is confirmed (Quebec statute, s. 12; Canadian statute, s. 43(c)). It has been pointed out that this principle may even be amplified by the reference in s. 43(c) of the federal Act not only to acquired rights, but also to accrued rights.) […]” (OUR TRANSLATION)
596. “The general principle in the case law is that the new Act is deemed to respect these situations because the Act is not intended to affect acquired rights. […]” (OUR TRANSLATION)
640. “In contractual matters, it has been held that a new statute cannot govern the ongoing effects of a loan or sale, an insurance contract, or a lease. The Supreme Court has also held that vested rights in a patent for invention should not be affected by the repeal of the law in force at the time the patent was issued.” (OUR TRANSLATION) (Emphasis added)
In Dikranian v. Quebec (Attorney General of Quebec)¹⁶, the Supreme Court of Canada stated as follows:
« The principle against interference with vested rights has long been accepted in Canadian law. It is one of the many intentions attributed to Parliament and the provincial legislatures. […] The leading case on this presumption is Spooner Oils Ltd. v. Turner Valley Gas Conservation Board, [1933] S.C.R. 629, at p. 638, where this Court stated the principle in the following terms:
A legislative enactment is not to be read as prejudicially affecting accrued rights, or “an existing status” (Main v. Stark [(1890), 15 App. Cas. 384, at 388]), unless the language in which it is expressed requires such a con- struction. The rule is described by Coke as a “law of Parliament” (2 Inst. 292), meaning, no doubt, that it is a rule based on the practice of Parliament; the underlying assumption being that, when Parliament intends preju- dicially to affect such rights or such a status, it declares its intention expressly, unless, at all events, that inten- tion is plainly manifested by unavoidable inference ».
In this regard, and despite the language of s. 4(5) of the Act, it should not apply to contractual obligations arising or assumed before the Act came into force.
The Act cannot have the effect of so heavily interfering with acquired or accrued rights, including the seller’s right to dispose of their property and to repay their construction loan with the proceeds of the sale or sales.
On January 31, 2023, the Honourable Sylvain Lussier, J.S.C. rendered a verdict holding that “by virtue of the exemption provided for in subsection 4(5) of the Act respecting the Prohibition on the Purchase of Residential Property by non-Canadians Act, the prohibition on the purchase of any residential real estate by any non-Canadian provided for in subsection 4(1) of the Act respecting the Prohibition on the Purchase of Residential Property by non-Canadians does not apply to a sale resulting from a promise to purchase and sell made by a non-Canadian prior to January 1, 2023.
This ruling was made in the context of a particular development project for which DJC represented the developer. It applies to all similar situations. It was rendered in the presence or with the advice of the Attorney General of Canada, the Attorney General of Quebec and the Chambre des notaires du Québe.
On March 27th, 2023, a certificate of no appeal was issued with respect to this judgment which is now final and represents the state of the law.
¹ L.C. 2022, ch. 10, art. 235.
²https://liberal.ca/fr/logement/interdire-les-achats-immobiliers-aux-etrangers/.
⁴https://assets.cmhc-schl.gc.ca/sites/cmhc/media-newsroom/notices/2022/thoughts-ban-non-canadians-buying-real-estate/consultation-paper-draft-limited-distribution-fr.pdf?rev=80ee63de-320a-418a-a23a-e96c8386bd60.
https://gazette.gc.ca/rp-pr/p1/2022/2022-08-20/html/commis-fra.html.
⁵ https://www.gazette.gc.ca/rp-pr/p2/2022/2022-12-21/html/sor-dors250-fra.html
⁶ 500-17-123410-220
⁷ Le magazine de la Chambre des notaires du Québec – Vol. 31, n°4 – HIVER 2023, p. 11.
⁹ https://mcmillan.ca/fr/perspectives/nouvelles-restrictions-a-la-vente-dimmeubles-survol-de-la-loi-sur-linterdiction-dachat-dimmeubles-residentiels-par-des-non-canadiens/; https://www.dentons.com/en/insights/articles/2022/october/12/canadian-government-enacts-a-two-year.
¹¹ 1975 CSC 162, voir p. 359 et ss.; voir également Li v. British Columbia, 2021 BCCA 256.
¹³ Pierre-André CÔTÉ, Interprétation des lois, 4e éd., Les Éditions Thémis, Montréal, 2009, p. 118, no 380, puis p. 121, no 391, puis p. 181, no 596, puis pp. 193-194, no 694.