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Property Laws in Canada: A Guide to Real Estate Development | BCBusinessWhat you need to know before getting into Canadian property development.
Understanding the complicated intersection of real estate development and property law in Canada – before the deal is done.
Property laws in Canada govern the rights and responsibilities of those who use and dispose of land in the country. They include owners, landlords, mortgage- and lease-holders, tenants and real estate development. Canadian real estate laws are mostly governed by provincial statutes, whereas B.C. real estate law regulates so-called “real property” in this province. Municipal governments are responsible for laws on property development in their communities, along with the collection of property taxes. And the federal government regulates property infrastructure, such as airports and railways.
[edin]Canadian real estate law is complicated for small businesses or investors planning to buy or sell property, expand their premises, or for those merely looking for the best deal on a rental or lease. There is a wealth of expertise to guide those with questions on real estate development through the thicket of rules and regulations.
Thankfully, real estate and property law in B.C. are greatly aided by the province’s Torrens land title system, which shows title to all real property in B.C., and the registrations affecting it, such as mortgages and easements.
Due to the historical youth of British Columbia, there is no need to trace back to the Middle Ages to verify title to land, which makes land transaction much simpler. Titles state with certainty who owns what land, and ensures nobody else has an interest in the property.
“When you look at real estate in B.C., there is a lot of certainty because of our land-title system,” says commercial real estate lawyer Jennifer Williams, with RBS in Vancouver, B.C.’s oldest law firm (140 years old this year).
But Williams, who also chairs the real property section of the Canadian Bar Association in B.C., says it’s vital in commercial real estate law to take the time to do the due diligence and get real estate legal advice. “Really involve your legal professionals, as early as you can in the game,” says Williams.
Darren Donnelly, a commercial real estate lawyer with Vancouver-based law firm Clark Wilson, says the first step is to do the market research on what you want to buy and where. Then, you need to write up a letter of intent, which sets out the essential business points. The third step is the contract to purchase and sale.
Donnelly advises businesses to research the property first, looking for any statutory liens, or if the vendor owes creditors, or unpaid taxes. It’s also important to look at the environmental condition of the property, and search for any contamination on the property, as well as on adjacent properties.
In B.C., says Donnelly, nearly all commercial real-estate deals are held in the name of a company that the owner sets up, whose only function is to be the registered owner of the property but without beneficial interest in the property. The reason for this structure is to minimize provincial Property Transfer Tax, which amounts to just under two per cent of the sale-price. So a purchaser buys shares in the company for a nominal price, in effect taking over the company that owns the property, avoiding the transfer tax.
Williams says businesses should take a close look at the lease agreement to find any red flags that could cause future problems, as a lease cannot be fixed after the agreement has been signed. “A lease is always negotiable,” Williams says. “And your lawyer can always help.”
Kelowna commercial realtor Tim Down, who chairs the B.C. Commercial Council, whose realtors accounted for 90 per cent of the commercial listings in B.C. last year, says most commercial transactions are lease agreements, because they are more cost-effective. Growing companies want to expand their lease space, while downsizing companies can sublet or return the property to the landlord.
Down says it’s important not to rush into a lease agreement without carefully reading through the fine-print details. “You have to be aware of what those clauses are,” he says. A commercial realtor – also called a real estate broker – can help a client negotiate a lease and spot any hidden clauses.
“I would highly recommend seeking out the services of a licensed commercial real estate representative,” says Down.
Canada, and especially B.C., has been a hotbed of property acquisitions in recent years, especially by foreign investors looking for a better return on investment or trying to outpace inflation. Under B.C.’s Business Corporations Act, foreign buyers only need proof that they are incorporated and exist in their own country. In recent years, Canada’s big pension funds have been partnering up with real-estate companies, to invest in multi-family residential and office buildings.
Maureen Enser, executive director of the Urban Development Institute, says businesses that want to develop property can be successful if they follow the steps involved, get expert help and take a common-sense approach.
The first step is to look at the development rules and regulations in the municipality where the property is located. Each local government has a set of Official Community Plans, along with local variations in real estate development planning regulations for industrial, commercial and residential real estate.
Enser suggests speaking with municipal planners, or local architects who have expertise in that municipality. “Undertake comprehensive research on the land and the local planning regulations, and the needs of the community,” she says. “We would encourage developers to develop projects that integrate well into the surrounding neighbourhood, and that respect the interests of the community.”
“We encourage common sense due diligence before making an investment decision,” Enser adds.
B.C. is one of the few provinces in Canada that require property developers to make disclosure statements – to disclose financing details as well as the nature of the development – under the Real Estate Development Marketing Act.
But recent court cases have gone in the buyer’s favour, challenging developers to a high standard of full and timely disclosure. “If you do not disclose it, the purchaser can take a run at it later,” says Williams. “It’s always better to disclose.”