Dispute Over Real Estate Transaction Deadline: Ontario Court of Appeal Affirms Vendor’s Termination of Contract In a recent appeal before the Ontario Court of Appeal, the Court showcased once again the significance of the “time is of the essence” clause. In, 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6, the parties entered into an Agreement of Purchase and Sale (APS) with 3:00 pm being the closing time specified on the completion date. The purchasing party missed the closing time by a mere 35 minutes and despite having delivered the purchase price, the Vendor terminated the contract. The appellant, 3 Gill Homes Inc., contested the application judge’s ruling in favour of the respondent vendor, 5009796 Ontario Inc., trading as Kassar Homes (“Kassar Homes”). In rendering its decision the Ontario Court of Appeal had to balance well-established rules of contractual interpretation and strict reading of the contract negotiated and entered into by the parties. Key Issues Did the application judge err in finding that: the payment closing time was 3:00 pm; time was of the essence in relation to the payment closing time; the 3:00 pm closing time was not unconscionable; damages could not be fairly determined on a written record; and Are the application judge’s reasons sufficient for appellate review? Court’s Decision The Court of Appeal dismissed the appeal, upholding the application judge’s ruling. Here’s the breakdown of the court’s reasoning: Payment Deadline: The court affirmed the application judge’s determination that the payment deadline of 3:00 p.m. was clearly stipulated in the APS. This timeframe was essential, and failure to adhere to it justified the vendor’s termination of the contract. “Time is of the Essence” Clause: The court agreed with the application judge’s interpretation of the “time is of the essence” clause. This clause made it clear that adhering to the closing date and time was crucial, empowering the innocent party to terminate the contract upon breach. Unconscionability: The court found no basis to interfere with the application judge’s conclusion regarding the absence of unconscionability. The parties’ familiarity with real estate transactions and the terms of the APS weighed against the appellant’s claim of unfairness. Sufficiency of Reasons: The court determined that the application judge’s reasons were adequate for appellate review. The judge’s analysis of relevant case law, the APS terms, and factual circumstances provided a clear rationale for the decision. Damages Determination: Since the court upheld the application judge’s ruling on the merits, it deemed the issue of damages determination unnecessary for consideration. Opinion Many commentators would describe the Ontario Court of Appeal’s decision as harsh, given the fact that the Purchaser missed the closing payment deadline by a mere 35 minutes. This case underscores the significance of honouring contractual agreements in real estate transactions. The court’s decision not to interfere with the contractual deadline reflects a commitment to upholding the parties’ bargained-for terms. In essence, if parties agree that funds must be provided by a specific time, irrespective of other deadlines, the court will honour that agreement. In this instance, the vendor was within their rights to terminate the contract when the funds were not deposited into their lawyer’s trust account by 3:00 p.m., as specified in the APS. It is a common practice for such clauses to be included in pre-construction agreements. Upon entering into an APS, purchasers would do well to insert a solicitor review condition to ensure they are advised of all contractual timelines. While the transfer deed, the document in which ownership is transferred from vendor to purchaser, can occur on or prior to 5:00 pm, the parties could insert additional timelines for certain deliveries in the APS. Conclusion The Ontario Court of Appeal’s decision in 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6 reaffirms the importance of respecting contractual obligations in real estate transactions. By upholding the parties’ bargained-for terms, the court ensures clarity and fairness in contractual dealings. This case serves as a reminder for parties to carefully review and negotiate their agreements to avoid disputes over contractual deadlines in the future. If you have questions about real estate transactions, please contact Louis Gasbarre, lawyer at Devry Smith Frank LLP at 416-446-5853 or louis.gasbarre@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” This blog was co-authored by Mohadeseh Bakhtiari. By AlyssaBlog, Real EstateMarch 11, 2024March 11, 2024
City Council Greenlights ‘Luxury’ Home Tax: Incoming Changes to Toronto’s Municipal Land Transfer Tax (MLTT) A land transfer tax (LTT) is a government-imposed fee applied when ownership of a property transitions from one owner to another. Typically borne by the buyer, this tax is calculated as a percentage of the property’s purchase price and varies based on location and local government policies. Land transfer taxes serve to generate revenue for the government, which can then be used to fund essential public services, such as healthcare, education, and infrastructure. The Municipal Land Transfer Tax (MLTT) was originally introduced on February 1, 2008, and is in addition to the provincial Land Transfer Tax (LTT) on residential properties transferred within the City of Toronto In early 2023, the Toronto City Council (the “Council”) sought additional housing-related revenue to address a funding shortfall. Initially, the Council proposed a 1% increase to the MLTT for “luxury” homes priced over $2 million. The proposed increase aimed to boost the housing supply and provide financial relief for homebuyers after the unprecedented surge in housing prices during the COVID-19 pandemic. Facing a concurrent 5.5% property tax increase, organizations like the Toronto Regional Real Estate Board (TRREB) contested the proposal. They argued that such an increase would deter “move-up” buyers from listing their properties, adversely affecting housing supply and affordability. Instead of proceeding with the proposed 1% increase, on September 6, 2023, the Council approved graduated MLTT rates with additional thresholds for high-value residential properties containing at least one, and not more than two, single-family residences. The new additional MLTT threshold rates will be applicable to any property transfers that are either officially registered or for which the MLTT becomes due on January 1, 2024, or any date thereafter and will impact high-value residential properties that are valued at $3 million or above. The current and new additional MLTT rates are broken down by the applicable thresholds and rates as follows: Current MLTT Rates Value of Consideration MLTT Rate Up to and including $55,000 0.5% $55,000.01 to $250,000 1.0% $250,000.01 to $400,000 1.5% $400,000.01 to $2,000,000 2.0% > $2,000,000 2.5% Additional MLTT thresholds and rates, for property valuations greater than $3 million, effective January 1, 2024: Additional MLTT Rates Value of Consideration MLTT Rate > $3M to $4M 3.5% > $4M to $5M 4.5% >$5M to $10M 5.5% >$10M to $20M 6.5% >$20M 7.5% The MLTT is calculated based on different tax rates for different portions of the property’s value. For example, if you were purchasing a property for $3.5 million, your current MLTT calculation would be broken down as below: Current MLTT for a $3.5M Residential Property Graduated Calculation Amount 0.5% on the first $55,000 Calculation: 0.005 * $55,000 $275 1.0% on the next $195,000 ($250,000 – $55,000) Calculation: 0.01 * $195,000 $1,950 1.5% on the next $150,000 ($250,000 – $400,000) Calculation: 0.015 * $150,000 $2,250 2.0% on the next $1,600,000 ($2,000,000 – $400,000) Calculation: 0.02 * $1,600,000 $32,000 2.5% on the remaining $1,500,000 ($3,500,000 – $2,000,000) Calculation: 0.025 * 1,500,000 $37,500 TOTAL MLTT: $73,975 Teraview provides a free MLTT calculator with the current rates here. Therefore, if you were purchasing a property prior to January 1, 2024, for $3.5 million, the MLTT would be $73,975. As of January 1, 2024, a property purchased for $3.5 million in Toronto, would incur an MLTT of $78,975 resulting in an additional $5,000 in MLTT. MLTT for a $3.5M Residential Property as of January 1, 2024 Graduated Calculation Amount 0.5% on the first $55,000 Calculation: 0.005 * $55,000 $275 1.0% on the next $195,000 ($250,000 – $55,000) Calculation: 0.01 * $195,000 $1,950 1.5% on the next $150,000 ($250,000 – $400,000) Calculation: 0.015 * $150,000 $2,250 2.0% on the next $1,600,000 ($2,000,000 – $400,000) Calculation: 0.02 * $1,600,000 $32,000 2.5% on the next $1,000,000 ($3,000,000 – $2,000,000) Calculation: 0.025 * 1,000,000 $25,000 3.5% on the next $500,000 ($3,500,000 – $3,000,000) Calculation: 0.035 * 500,000 $17,500 TOTAL MLTT: $78,975 The City of Toronto website provides a free MLTT calculator with the new rates here. In addition to the applicable MLTT, the LTT is also calculated on a gradual basis and charged at the time of registration of the transfer of the property. For a purchase price of $3.5 million, you would be paying $73,955 in LTT in addition to the MLTT costs above, irrespective of whether the transaction is completed prior to, or after January 1, 2024. Teraview provides a free LTT calculator here. This approved increase in the MLTT on residential properties valued at $3 million and above, is one revenue stream that the City of Toronto is utilizing as part of its approved long-term financial plan, to aid in its budgetary shortfall for 2024. The long-term repercussions of the MLTT rate increase on the residential real estate market are uncertain. This adjustment has the potential to discourage prospective purchasers from entering the luxury market, leading to the emergence of a segment of buyers more attuned to pricing sensitivity. It might also incentivize buyers to explore properties below the MLTT increase threshold, fostering a market that is more stable and sustainable. If you are considering purchasing a high-value residential property with a valuation over the $3 million threshold, it may be prudent to take advantage of the opportunity to complete the transaction prior to January 1, 2024, to avoid increased MLTT expense. For more information, assistance, or any other questions regarding new home purchases, renovations, or other real estate transactions, please contact Ashley Almeida at Devry Smith Frank LLP at (416) 446-3335 or at ashley.almeida@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by Articling Student, Owais Hashmi. By AlyssaBlog, Real EstateDecember 18, 2023December 15, 2023
What Should You Do When a Co-Owner Doesn’t Want to Sell? If you partly own property, but your co-owner does not want to sell (or develop, or mortgage, etc.), don’t worry, you have options. Sometimes we make a foolish investment; sometimes we split up with our partners; sometimes we fight with our family members. Sometimes we just aren’t in agreement about what to do next. If you are a registered owner and you feel stuck, the answer is simple: bring an application for partition or sale under the Partition Act, RSO 1990 c P4. The Partition Act Under the Partition Act, any co-owner, whether by joint tenancy or tenants in common, seeking to force the sale or division of land they own with others can bring an application for a partition or sale of the land. This would allow a joint-owner of a property whose co-owner does not want to sell to seek an order that their property be sold or divided. Any person with an interest in land in Ontario may make an application for partition under the Partition Act. This includes the guardian of a minor who is entitled to the possession of an estate. Though, a proceeding for partition or sale by or on behalf of a minor needs to be on notice to the Children’s Lawyer. An application for the partition or sale of land will proceed under the directions of the court to ensure that everything proceeds fairly. This is to prevent the partition or sale of land being advantageous or disadvantageous to any of the parties. The Result In most cases, the court will order the sale or division of the property even if all of the owners do not agree to it. If the property is a condominium or home, and the property cannot reasonably be divided, then it must be sold and the profits be divided amongst the co-owners. In Brienza v. Brienza, 2014 ONSC 6942, the decision of Davis v. Davis, 1953 CanLII 148 (ON CA) was considered, which sets out the general principles to determine when partition and sale should be granted. The Court of Appeal stated as follows: “There continues to be a prima facie right of a joint tenant to partition of sale of lands. There is a corresponding obligation on a joint tenant to permit partition or sale, and finally the Court should compel such partition or sale if no sufficient reason appears why such an order should not be made.” It is therefore likely that the application for partition or sale will usually be granted. There are, however, exceptions. For example, the court will not order the sale or division of property if the application is brought in extreme bad faith, or if the application is part of a family law claim. The court in Brienza stated that the court’s discretion to refuse partition and sale is narrow and that in order to justify the refusal to grant partition and sale there must be “malicious, vexatious or oppressive conduct.” If this is the case, the onus is on the party resisting the partition or sale to demonstrate why the application should be refused. It is becoming more and more common to purchase a property with a co-owner in today’s economy. If you have questions or concerns about your jointly-owned property or would like to bring an application for partition or sale, please contact our legal team to arrange a consultation. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by Articling Student, Samantha Lawr. Book A Consultation Name Phone Email Message Form By submitting this form I acknowledge that my meeting today does not mean that Devry Smith Frank LLP (“DSF”) is acting as my lawyers. I direct DSF to take no steps with respect to my matter until I have provided a monetary and written retainer, as acceptable to DSF. I may sign a retainer agreement and provide a monetary retainer (other than the consult fee) today. If I do not, I know that I can contact Devry Smith Frank LLP in the future to inquire about retaining the firm. Send By AlyssaBlog, Real EstateNovember 13, 2023March 11, 2024
Principal Residence Exemption Ineligibility – House Flipping As a general rule, the sale or disposition of any residential property in Canada triggers a capital gain, or, in an unlikely scenario, a capital loss. The capital gain is equal to the difference between the adjusted cost base (the amount for which the property was purchased) and the price at which it was sold. It is not necessary for the property to have actually been sold; it is enough for a tax rule or regulation to deem that a sale (disposition) took place to trigger a capital gain. Fortunately, the Principal Residence Exemption (“PRE”) can offset or even eliminate completely a capital gain, whether the property was sold or otherwise deemed to have been disposed of. The purpose of the PRE is to allow Canadian property owners to sell their properties and reinvest into the purchase of a new home on a tax-free basis. This exemption can be used for the property that the taxpayer designates as their “principal residence.” A principal residence is defined as one that is “ordinarily inhabited” by the taxpayer. The meaning of “ordinarily inhabited” varies depending on the exact factual circumstances. Filing Requirements and the T2091 In 2016, the government announced an administrative change with respect to reporting requirements for the sale of a principal residence. Prior to this, taxpayers were not required to report the sale of a home on their income tax if they were eligible for the full tax exemption. However, beginning in the 2016 taxation year, all taxpayers are required to report basic information (such as the date of acquisition, proceeds of disposition, and description of the property) on their income tax returns to claim the PRE. Form T2091 is used for this purpose and is included in the income tax return for the year of sale or disposition. Not all homeowners will be eligible for the PRE. As with many rules under the Income Tax Act, there are exceptions to the exemption and conditions that must be satisfied. Exceptions to the Principal Residence Exemption – Frequency of Sales The 2022 Federal Budget brought in a new “Residential Property Flipping Rule” that pertains to ‘house-flipping’ – the act of purchasing and selling real property over a short period of time. Prior to this legislation, there were no rules regarding how often a person can buy, build, or sell real property. The “principal residence” designation was evaluated on a case-by-case basis and typically required the taxpayer to prove that they intended, at the time they acquired the property, to reside in it “permanently.” The new legislation, applicable to properties sold after January 1, 2023, stipulates various new tax consequences for frequent purchase-and-sale transactions of real properties. The consequences are twofold: first, a “flipper” is ineligible for the PRE, even if it would otherwise apply; and second, any profits realized on the sale of “flipped” residential properties are taxable as business income, not as capital gains. In most circumstances, this is a much more costly tax liability. The previous “informal 1-year” rule became a statute: residential properties held for less than 12 months will generally be considered “flipped” unless the sale is the result of a death, disability, new job, separation, or another exemplary life event. Conclusion In conclusion, while an owner may be exempt from tax on the sale or disposition of real property by utilizing the PRE, the eligibility to claim the full amount of the exemption is affected by (among other things) the ownership of more than one property and the frequency at which the properties are bought and disposed of. Taxpayers who have owned a property for less than a year, or who own multiple properties, should consider the implications of selling their home. If you have concerns about your principal residence designation or any other potential tax consequences of the transfer or sale of a property you own, please contact our legal team to arrange a consultation. This blog was co-authored by law student Julia Ponedelnikova. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see or speak to a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By AlyssaBlog, Real EstateOctober 16, 2023October 10, 2023
What Do I Need to Consider Before Buying the Property Right Next Door? Are you interested in purchasing the property right next to yours? What about the empty lot bordering your cottage property that is up for sale? Property owners often consider purchasing an abutting property for a variety of reasons. An abutting parcel of land is one that shares at least one border with a landowner’s existing parcel of land. Reasons for purchasing an abutting parcel of land might include expanding the property that the landowner already lives on, family members who wish to own their homes next to each other, and farmers who want to grow their agricultural business by purchasing abutting parcels of farmland. Although buying an abutting parcel of land may be beneficial, there are important legal factors to consider. Those factors briefly explained below could save the landowner considerable expense. Who will be the registered owner(s) of the abutting lands? Beware of the risk of merger It is important to consider the registered ownership of the abutting properties. Although there are exceptions, the general rule is that if the same party owns abutting parcels of land, those parcels merge and cannot be sold or mortgaged separately. If the owner wishes to sell or mortgage one of the merged parcels, the land must be legally severed by way of a severance application to the local municipality. It is both a lengthy and expensive process to receive a consent to sever land to form a separate parcel of land all over again. Once the land is officially severed by the municipality, it can be sold or resold without worrying about another approval process unless a future owner chooses to merge the lands again. Why do I need permission to sever my land? The municipalities in Ontario want to make sure that their communities are protected and properly organized. Likewise, the municipalities must conduct planning reviews and approvals to ensure that future severed lands conform with their individual and established planning frameworks, that there would be no conflicts with the planning goals of the local community, and that neighbours would not be adversely affected. Multiple severed lands at the discretion of individual landowners can have many consequences for a community, such as affecting the natural environment where frequent small lots can impede proper sewage disposal systems, and increasing municipal services such as garbage collection, snow plowing and school busing for children. What can I do to avoid merging my properties? A real estate lawyer can help you to find the right configuration to ownership on title for a particular property in order to avoid an automatic merger with an abutting parcel that the buyer already owns. One example of a method to avoid an automatic merger is if one spouse owns a property and they want to purchase the property next door, they could have the other spouse own some percentage of the new property or become registered owners on title together, as joint tenants, where both spouses have equal rights and obligations to the property. What happens if one of the joint tenants of a property dies, and the remaining owner is the owner of both abutting properties? The death of a joint tenant will no longer result in an automatic merger of abutting parcels owned by the surviving owner. Amendments to address this situation were made to Ontario’s Planning Act in 2022. As a result, the surviving owner will be able to deal with each parcel separately without having to seek approval from the municipality. Purchase the property next door with confidence with the help of one of our highly experienced real estate lawyers at Devry Smith Frank LLP. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by law student Sanaz Sakhapour. By Fauzan SiddiquiBlog, Real EstateJune 9, 2023July 6, 2023
Proposed Provincial Planning Statement 2023: A Summary On April 6, 2023, the Ontario government released the proposed Provincial Planning Statement 2023 (“PPS”) which is intended to simplify and integrate existing policies to achieve housing objectives while providing tools for municipalities to deliver on housing objectives. The PPS recognizes that the objectives for achieving housing outcomes are not universal and provides a more flexible approach for municipalities to adapt and implement policies based on the municipality’s requirements. The following are highlights of the changes within the proposed PPS: Building Homes, Sustaining Strong and Competitive Communities The proposed PPS has removed the requirement that municipalities meet specific intensification and density targets to accommodate forecasted growth, with the exception of density targets for major transit station areas in large and fast-growing municipalities. Instead of this requirement, municipalities are encouraged to establish density targets that are appropriate for the municipality’s needs. The proposed PPS identified 29 municipalities that are required to identify and focus growth in strategic growth areas, including identifying an appropriate minimum density target and planning to meet minimum density targets for major transit station areas. The proposed PPS further provides broader permissions to expand residential housing to facilitate further development, including converting existing commercial and institutional buildings for residential use, developing and introducing housing options within previously developed areas, and redeveloping areas to increase the number of residential units. In addition to increasing the number of residential units, the proposed PPS provides that planning authorities shall promote economic development and competitiveness by providing an appropriate mix of employment, institutional, and broader mixed uses to meet the long-term needs of residents, including identifying sites suitable for building infrastructure for employment purposes. The proposed PPS permits multi-lot residential development on rural lands where appropriate sewage and water servicing can be provided and removes the test for when infrastructure is proposed to be expanded for rural development, providing greater flexibility for private servicing – municipalities must consider “locally appropriate” rural characteristics when directing development in rural settlement areas. Lastly, municipalities must engage in planning with an eye towards reducing greenhouse gas emissions and to prepare for the impacts of climate change through approaches that support and incorporate climate change considerations in developing infrastructure. Employment The proposed PPS further overhauls the employment protection scheme in Ontario as it actively promotes mixed-use development where the mix of uses are compatible, and protects and preserves areas that are largely industrial and manufacturing areas. The definition of employment areas prohibit institutional uses and commercial uses unless those commercial uses are associated with primary employment use which include manufacturing uses, research and development uses. As such, the change to the definition of employment areas draws a clear distinction between commercial uses, institutional uses, and retail/office uses, that are not associated with primary employment. The proposed PPS further clarifies the test for employment conversion requests and removes the requirement for municipal comprehensive review. The new test outlines that planning authorities may remove lands from employment areas only where it is demonstrated that: There is an identified need for the removal and the land is not required for employment area uses over the long term; The proposed uses would not negatively impact the overall viability of the employment area by avoiding, or where avoidance is not possible, minimizing and mitigating potential impacts to existing or planned employment area uses in accordance with policy 3.5; and maintaining access to major good movement facilities and corridors; and Existing or planned infrastructure and public service facilities are available to accommodate the proposed uses. Lastly, the proposed PPS suggests selecting provincially significant employment zones or portions of provincially significant employment zones to protect employment uses. Settlement Area Expansion The proposed PPS removes the need for a municipal comprehensive review and allows settlement area expansion as long as policy tests are met. In addition to removing references to a municipal comprehensive review, the municipality must be able to demonstrate that: that there is sufficient capacity in existing or planned infrastructure and public service facilities; the applicable lands do not compromise specialty crop areas; the new or expanded settlement area complies with the minimum distance separation formulae; impacts on agricultural lands and operations that are close to the settlement area are avoided, or minimized and mitigated if avoidance is not possible; the new or expanded settlement area provides for the phased progression of urban development. Land Use Compatibility The proposed PPS provides enhanced protections for industrial and manufacturing uses as well as other major facilities from encroachment on sensitive land uses and revises the test planning authorities must consider where it is not possible to avoid adverse effects from odour, noise, and other contaminants. The proposed PPS also removes any reference to adverse effects to the proposed sensitive land use being minimized and mitigated, revealing a greater focus on protecting longer-term viability of industrial and manufacturing uses, as well as major facilities. Agriculture The proposed PPS would no longer require municipalities to use the provincially mapped Agricultural System in developing lands within prime agricultural areas. Municipalities will still be required to designate and protect prime agricultural areas for long-term use but it will be easier to establish more housing within prime agricultural lands. The policy would also allow principal dwellings associated with agricultural operations to be located within prime agricultural areas as an agricultural use and permit residential lot creation in these areas in accordance with provincial guidelines for “new residential lots created from a lot or parcel of land that existed on January 1, 2023”. Lastly, the proposed PPS would require an agricultural impact assessment to avoid impacts from any new or expanding non-agricultural uses on surrounding agricultural lands and operations. Natural Heritage System/Management of Resources The proposed PPS provides that planning authorities prioritize protecting or restoring the quality and quantity of resources including water, minerals, as well as cultural heritage and archaeological sites from land alterations. The development of new housing and site alteration should be limited to surface water features and sensitive ground water features. The proposed PPS favours balancing the use and management of natural resources with attention to appropriate housing supply and considers the mitigating effects of vegetation and green infrastructure in developing housing supply. As noted above, the proposed PPS has the potential to change the planning regime in Ontario. To better understand the provisions within the proposed PPS, please contact one of the following municipal and development lawyers today! Larry W. Keown-larry.keown@devrylaw.ca, 416-446-5815 Marc Kemerer–marc.kemerer@devrylaw.ca, 416-446-3329 David S. White–david.white@devrylaw.ca, 249-888-6633 “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by student-at-law Abby Leung. By Fauzan SiddiquiBlog, Real EstateApril 19, 2023June 10, 2023
Ontario Court of Appeal Affirms That Construction Liens’ Priority Under the Construction Act is Limited to Extent of the Deficiency in the Owner’s Holdback BCIMC Construction Fund Corp. et al. v. 33 Yorkville Residences Inc. et al., 2023 ONCA 1 (CanLII) The decision in BCIMC Construction Fund Corp. et al. v. 33 Yorkville Residences Inc. et al.[1], involved a number of lien claimants which had provided services and materials to the owner of a condominium development. The owner of the condominium had become insolvent and the property subject to the improvement had sold by a Receiver pursuant to a court order. At the time of sale, there were six mortgages registered against the property and two were building mortgages pursuant to Section 78(2) of the Construction Act.[2]The parties did not dispute that the lien claimants are entitled to a priority payment out of the proceeds of sale to the extent of any deficiency in the owner’s holdback under Section 22(1) of the Construction Act. The issue in dispute was the distribution priority pursuant to Section 78(2) of the Construction Act, which outlines the method in determining the amount of the deficiency to which the priority applies. The lien claimants brought a motion to determine this issue. The lien claimants took the position that because there were two building mortgages, they were entitled to priority with respect to the deficiency in holdback over each mortgage. In other words, where the deficiency in holdback was the 10% which the owner was required to retain under the Act, the lien claimants took the position that they were entitled to a 10% priority over each building mortgage such that the total amount for which their liens had priority amounted to 20% of the price of services and materials supplied. In interpreting Section 78(2) of the Construction Act, the Ontario Superior Court held that lien claimants are limited to priority over all combined building mortgages, rather than each mortgage separately.[3] As such, the lien claimants’ motion was dismissed. The claimants appealed to the Ontario Court of Appeal. The Ontario Court of Appeal dismissed the lien claimants’ appeal. Background – The Construction Act Under Section 22(1) of the Construction Act, each payor in a contract or subcontract where a lien arises must retain a 10% holdback of the price of the services or materials supplied until all liens have expired or are satisfied.[4] Section 78 of the Construction Act provides additional rules concerning priority between mortgagees and lien claimants and provides that subject to exceptions, liens from an improvement have priority over all mortgages.[5] The exception in this case appears in Section 78(2) which deals with building mortgages. Section 78(2) provides that the lien has priority to the extent of any deficiency in the holdbacks required to be retained, regardless of when that mortgage or the mortgage taken out to repay it is registered.[6] The lien claimants submitted that the interpretation of Section 78(2) requires that each lien claimant has priority over each building mortgage to the extent of the deficiency in the holdback. Since there were two building mortgages registered on the property, the lien claimants argued that they were entitled to priority over each building mortgage to the extent of the deficiency in the holdback totalling a 20% holdback fund. The lien claimants further argued that the context and purpose of the Construction Act was to protect lien claimants as subsequent building mortgagees expect to assume more risk than prior mortgagees and should not be insulated from additional risk by limiting a lien claimant’s priority to one 10% deficiency claim. Finally, the lien claimants submitted that the case of GM Sernas & Associates Ltd v. 846539 Ontario Ltd.[7] should be distinguished from the present case. In Sernas, the Ontario Court of Justice held that the maximum priority of a claim for lien over two mortgages is 10%, saying that there is one holdback figure and that the deficiency is the full holdback figure.[8] The lien claimants argued that the issue on whether priority is to measured against each mortgage separately was not addressed in Sernas and that as such, Sernas was not binding on the claimants.[9] Ontario Superior Court’s Decision The Ontario Superior Court dismissed the lien claimants’ motion as the lien claimants’ interpretation of Section 78(2) of the Construction Act limited the meaning and effect of key words in the section, reads in additional language that is not present in the section, and produces a result that is inconsistent with the scheme and purpose of the Construction Act.[10] Justice Penny held that Section 78(2) provided priority to a mortgage taken with the intention to secure the financing of an improvement “to the extent of a deficiency” in the owner’s holdback.[11] As such, there is only one holdback available for lien claimants regardless of the number of building mortgages registered on the property. Furthermore, the Court emphasized that when read as a whole, the Construction Act does not have any underlying policy directed solely to protect lien claimants. Referencing RSG Mechanical Incorporated v. 1398796 Ontario Inc., the Court held that there was no suggestion that the interests of lien claimants should be favoured above the interests of mortgagees beyond the value of the holdbacks the legislation requires.[12] Ontario Court of Appeal Decision The lien claimants appealed the Ontario Superior Court’s decision and argued that as the matter is one of statutory interpretation of the Construction Act, the lien claimants argued that the motion judge’s decision and reasoning was incorrect. In reviewing the lower court’s decision, the Court of Appeal found that the motion judge correctly identified and applied the purposive and contextual approach to statutory interpretation and determined that there was no error in the motion judge’s application of the rules of statutory interpretation.[13] As such, the appeal is dismissed. Conclusion This case provides greater clarity for lenders engaged in construction financing with regards to the extent of holdback priority in situations with multiple building mortgages. As the cost of construction increases, especially following the COVID-19 pandemic, it is crucial for lenders to ensure that owners are continuing to maintain the appropriate holdback amount in accordance with the Construction Act. As it stands for now, lien claimants are only entitled to one holdback fund, irrespective of the number of building mortgages registered on the property. If you have any questions about construction law in general, please contact Christopher Statham at 416-446-5839 or christopher.statham@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” This blog was co-authored by student-at-law, Abby Leung [1] 2023 ONCA 1 [BCIMC]. [2] R.S.O. 1990, c. C.30 [Construction Act]. [3] 2022 ONSC 2326 [2022 ONSC 2326] at para 3. [4] Construction Act, supra note 2 at s.22(1). [5] Ibid at s.78(1). [6] Ibid at s. 78(2). [7] [1999] O.J. No. 3714 (S.C.). [8] 2022 ONSC 2326 supra note 3 at para 16. [9] Ibid at paras 17-18. [10] Ibid at para 20. [11] Ibid at para 21. [12] Ibid at para 28. [13] BCIMC, supra note 1, at paras 13-14. By Fauzan SiddiquiBlog, Construction Law, Real EstateMarch 14, 2023June 25, 2023
Homeowner Beware: A Reminder That You Should Consider Title Insurance For Your Home A recent headline in the Toronto Sun caught my eye: Homeowners urged to get title insurance after Etobicoke real estate fraud.[1] The related article tells the tale of unknown individuals who allegedly impersonated the owners of a home and sold it while the owners were away. The story includes a recommendation from Tim Hudak, of the Ontario Real Estate Association, to get title insurance for your home. In addition to being the place where you live and raise your family, the home is often your largest single asset. What do you do if you find out one day that the registered owner of it is someone whom you have never heard of or that there is now a whopping $500,000 mortgage on it to which you did not agree? How do you navigate trying to undo the fraud? Reporting the matter to the police can be important, but it will not reverse the fraud. Having title insurance which insures your property against fraud may be the answer. We often get retained by title insurers to take the legal steps necessary to fix or delete fraudulent transfers and fraudulently registered mortgages, the consequence of which could otherwise be devastating. So, what is title insurance? In general terms, it is insurance to protect property owners and lenders against certain losses related to the property’s ownership and interests in it. It is available in Ontario from several insurers, including FCT,[2] Stewart Title Guaranty Company,[3] Chicago Title (Canada),[4] and TitlePLUS.[5] What does it cover? The title policy in question will set out what insurance is provided. Generally speaking, however, title insurance will cover, among other things, fraudulent registrations against the property, unknown title defects which may affect ownership, some liens, encroachments and right-of-way issues, and errors in surveys and public records. What does title insurance cost? Like other insurance, you need to pay a premium to obtain it. Unlike most other types, the premium is a one-time payment, usually a few hundred dollars, and, best of all, the insurance normally continues as long as you own the insured property. Mr. Hudak’s recommendation constitutes good advice. Every homeowner should, at the very least, consider title insurance. A good place to start is to ask your lawyer about it, especially before you buy your home. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” By Fauzan SiddiquiBlog, Real EstateJanuary 23, 2023July 5, 2023
Non-Canadians Will be Prohibited from Buying Canadian Residential Property in 2023 Proposed in the Federal Budget of 2022, and passed in June of 2022, the Government of Canada has enacted the Prohibition on the Purchase of Residential Property by Non-Canadians Act[1] (the “Act”). As is made clear by the title, the Act prohibits the purchase of Canadian residential property by non-Canadians, directly or indirectly. ‘Indirectly’ refers to scenarios where a purchase is attempted through a trust, partnership, or an unincorporated association. Interestingly, the Act overrides section 34 of the Citizenship Act[2], which otherwise explicitly grants this right to non-Canadians. The Act will be enforced for a two-year period beginning January 1, 2023 and does not apply if a non-Canadian becomes liable or assumes liability under an agreement of purchase of sale of residential property before this date.[3] To understand the extent of the application of the Act to potential purchasers, it is important to pay close attention to the Act’s definition of a “non-Canadian”. The definition is as follows: an individual who is not a Canadian citizen, permanent resident of Canada or registered as an Indian under the Indian Act,[4] a corporation that is not incorporated under the laws of Canada or a Canadian province, a private corporation that is incorporated in Canada but that is controlled by a person referred to in paragraph (a) or (b) above. In addition, “purchase” means to acquire or agree conditionally or unconditionally to acquire a legal or equitable interest, or an immovable real right in a residential property. There have been proposals to preclude certain situations under this term, specifically those pertaining to an acquisition resulting from divorce or separation, the rental of a residential dwelling unit, or an acquisition resulting from succession. These proposals are expected to be included in a set of Supporting Regulations (the “Supporting Regulations”) that will be released to provide additional detail regarding the application of the Act. Exemptions As is common to many laws and regulations, the Act provides for certain exemptions. These exemptions include: temporary residents within the meaning of the Immigration and Refugee Protection Act[5] who satisfy prescribed conditions set out in the Supporting Regulations; a refugee; an individual who is a non-Canadian and who purchases residential property in Canada with their spouse or common-law partner if the spouse or common law partner is a Canadian citizen, person registered as an Indian under the Indian Act[6] permanent resident or person referred to in paragraph (a) or (b) above; or, a person of a prescribed class of persons under supporting regulations.[7] Penalties, Enforcement and Liability Under section 6(1) of the Act, anyone who contravenes or counsels, induces, aides or abets a contravention of the Act, or attempts any of the above, is guilty of a summary conviction of a fine of not more than $10,000. Additionally, if the offence is committed by a corporation, then any officer, director, or agent or other authorized individual that “directed, authorized, assented to, acquiesced in or participated in” the commission of the offence is a party and is held equally liable, regardless of whether the corporation was prosecuted.[8] Note that a contravention of the Act will not void a contract to purchase residential property from an innocent vendor. However, if a non-Canadian is convicted of having contravened the Act, a court may order that the property be sold in a prescribed manner and under prescribed conditions. Subsection 8(2) of the Act indicates that when a court orders the sale of residential property bought by a non-Canadian in contravention of the Act, the non-Canadian cannot receive more than the purchase price paid for the property from the proceeds of sale. Given the implications of the Act, individuals who are involved in the real estate industry, such as real estate agents, mortgage brokers and lawyers, should take extra care to ensure that they confirm the residential status of purchasing clients. Real estate professionals should independently verify their clients’ identity, document their clients’ Canadian status, and have the clients confirm their status in writing. Real estate professionals acting for the vendor in a transaction should also be wary about contravening the Act unintentionally. Even though it may not be the direct responsibility of the selling party to verify the Canadian status of the purchaser, do not be quick to conclude liability may not extend that far. It would be good practice to include certain provisions within an Agreement of Purchase and Sale to shield the selling party from potential liability at the outset of the transaction. If you have additional questions or concerns regarding the Prohibition on the purchase of residential property by Non-Canadians Act, please feel free to contact Jason Lane at Woitzik Polsinelli LLP at 289-220-3241 or jason@durhamlawyers.ca. This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with legal advice tailored to your specific situation and needs. [1] SC 2022, c. 10 s. 235 [2] RSC, 1985 c. C-29. [3] Supra note 1, s. 4(5). [emphasis added] [4] RSC 1985 c.I-5. [5] SC 2001 c.27. [6] Supra note 5. [7] Supra note 1, s. 4(2). [8] Ibid, s. 6(2). By Fauzan SiddiquiBlog, Real EstateDecember 20, 2022June 10, 2023
More Homes Built Faster Act,2022 pt.2 Further to our 8 November article on this topic, the More Homes Built Faster Act (Bill 23) received Royal Assent on to 28 November 2022 and is now largely in force. It is intended to increase housing supply and affordable housing options for Ontarians by getting 1.5 million homes built over the next 10 years. It boldly does so in a number of very significant and controversial ways. The highlights of the approved form of Bill 23 include: Development Charges Act, 1997 Bill 23 creates a number of new exemptions from development charges as follows: the greater of 1 residential unit or 1% of existing residential units in a building containing 4+ residential units; up to 3 residential units in a new detached house, semi-detached house or rowhouse; non-profit housing development; and residential affordable housing pursuant to a development approved by way of a zoning by-law (after 28 November 2022); and residential units intended to be affordable or attainable for a period of 25 years or more (on a date to be proclaimed) Under section 5 of that Act the amount of development charges are now reduced on a sliding scale from 80% to 95% from the charges imposed pursuant to a by-law passed on or after January 1, 2022 (unless the DC is payable immediately prior to 28 November 2022). Development charges for rental housing projects are reduced by 25% for premises with three or more bedrooms, 20% for two bedroom units, and 15% for all other residential units. Commencing on 1 January 2023 municipalities are now required to spend and/or allocate each year at least 60% of the monies in reserve funds for water supply services, including distribution and treatment of services, waste water services, and treatment and services related to highways. A development charge by-law now expires every 10 as opposed to every 5 years. The Planning Act The most significant changes to the Planning Act will limit/extinguish the appeal rights of third-parties, including upper tier municipalities now characterised as upper tier municipalities without planning responsibilities (the GTA Regions of Durham, Halton, Niagara, Peel, Waterloo, York and Simcoe) and conservation authorities (date to be implemented TBD). For minor variances and consents the Act will restrict a right of appeal to applicants, public bodies and “specified persons” (public utilities, operators of railway lines, and telecommunications providers). This will increase the significance of local Committees of Adjustment as they may now be the only opportunity to oppose a project. Importantly this provision has retroactive effect and will nullify appeals where a hearing on the merits has not been scheduled before October 25, 2022. Upper Tier municipalities without planning responsibilities will cease to become approval authorities for local planning instruments. Bill 23 contains other consequential changes including: deleting the prohibition on making requests for official plan and zoning by-law amendments for the 2 year period following their coming into effect; allowing the Minister of Municipal Affairs and Housing to make amendments to official plans where the Minister is off the opinion that a plan will adversely affect a matter of provincial interest; allowing up to three residential units in a house to be permitted “as of right” (including placing restrictions on parking requirements); reducing the section 37 community benefit further by making the prescribed percentage of value (4%) subject to a ratio recognizing the existing floor area. This ratio will be further reduced where the formula takes into account affordable/attainable units (date to be implemented TBD); exempting from site plan control (section 41): A. residential development of up to 10 units and a land lease community home from site plan control; and B. exterior design as an element to be considered in site plan drawings. It will be interesting to see what effect this has on urban design guidelines; revising section 42, parkland dedication, requirements by: A. with respect to the dedication of land/cash-in-lieu of 5% (residential rate): decreasing that requirement by the percentage of affordable/attainable units (on a date to be proclaimed); and exempting up to 3 residential units and non-profit housing; B. with respect to the alternate rate (unless a building permit has been issued): changing the rate from 300 units/ha to 600 units/ha; restricting the calculation further to: if 5 ha or less of land, 10% of the land or the value of the land; if more than 5 ha 15% of the land or land value; excluding from the calculation: the number of existing units; and affordable/attainable units from the calculation of net residential units (date to be implemented TBD); C. permitting land owners to propose the conveyance of portions of their land, including encumbered lands, for parkland purposes as opposed to having to rely on the determination of the local municipality (date to be implemented TBD); and D. requiring municipalities to allocate at least 60% of monies collected for parkland purposes at the beginning of each year (1 January 2023). amending section 51 by removing the requirement for a public meeting on subdivision applications. Conservation Authorities Act The Conservation Authorities Act is amended to greatly reduce the ability of Conservation Authorities to regulate development activity by removing their ability to comment on development applications and to require permits for projects approved under the Planning Act. Moreover the Minister will have greater powers to make exceptions for development applications. (date to be implemented TBD). “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique, and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situations and needs.” By Fauzan SiddiquiBlog, Real EstateDecember 9, 2022May 16, 2023