Commercial Real Estate

Good News for Buyers, Builders and Brokers: Amendments to the Ban on Purchases of Residential Real Estate by Non-Canadians

Torkin Manes LegalPoint

Further to our two publications of November 9, 2022, and December 30, 2022, with respect to the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), real estate industry stakeholders will be pleased to learn of the federal government’s amendments to the Regulations (the “Amendments”), which came into force on March 27, 2023.

This update focuses on the following changes to the Regulations, which amend, repeal or replace the Regulations referred to in our prior publications.

Definition of Residential Property and Exemption for Development

The Amendments repeal the legislative provisions that formerly prohibited the purchase of vacant land zoned for residential or mixed use located within either a census agglomeration or census metropolitan area by a non-Canadian. The Amendments now also supplement the legislation by excluding from the prohibition any purchase by a non-Canadian of residential property for the purposes of development. 

Together, these Amendments address the unintended consequences of the Act, which formerly operated as a de facto restriction on meaningful investments by non-Canadians in corporations, partnerships and limited partnerships acquiring title to land zoned for residential or mixed use development. The Canada Mortgage and Housing Corporation has published commentary on the Amendments, including what constitutes “development” for the purposes of the Act.

  • What is a non-Canadian and How is “Control” Defined. While the prohibition on purchases of residential property continues to apply to: (i) entities not formed under the laws of Canada or a Canadian province; and (ii) entities formed under the laws of Canada or a Canadian province that are controlled by entities not formed under the laws of Canada or entities that are controlled by non-Canadian individuals or entities, the Amendments replace the previous definition of control with the following:
    • Direct or indirect ownership of shares or ownership interests of the corporation or entity representing 10% or more of the value of the equity in it, or carrying 10% or more of its voting rights; or
    • Control in fact of the corporation or entity, whether directly or indirectly, through ownership, agreement or otherwise.

    Despite the Amendments, the threshold for control is, with respect to what is now a 10% test, still quite low relative to generally understood definitions of control in a corporate or partnership context. However, this Amendment is a significant improvement over the original threshold of 3% and provides those in the real estate industry who rely, at least in part, on foreign investors with greater options.

  • Expansion of Public Entity Exemption. The Act initially exempted corporations listed on Canadian stock exchanges from the definition of “non-Canadians” but did not exempt other publicly traded entities such as REITs. The Amendments now expand the exemption to all publicly traded entities formed under the laws of Canada or a province.

The Amendments are a welcome change, providing much needed clarity and resolving some of the unintended issues in respect of the original application of the Act. With the Amendments, the Act no longer impacts the acquisition of mixed use, industrial, office, and other non-residential real estate asset classes, but rather is restricted to lands that contain habitable dwellings, and permits acquisitions of residential properties intended for the purposes of development. Certain foreign investors will still be impacted by the Act and thus it is important that real estate buyers, builders and brokers be aware of the Act and seek legal advice if they may be impacted. 

If you have any questions regarding the Act, the newly enacted Amendments and/or related matters, the authors and other lawyers in our Commercial Real Estate Group would be pleased to assist.