Canada’s Prohibition on Foreign Home Buyers Knocking on the Door

Canada’s Parliament recently passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”), which has prohibited the purchasing of residential real estate by non-residents, directly or indirectly, for a two-year period beginning January 1, 2023.¹ Individuals who do not have Canadian citizenship or permanent residency will not be able to purchase Canadian residential real estate during this two-year window, unless liability under the agreement of purchase and sale is assumed prior to January 1, 2023.²

Who Is Deemed “Non-Canadian”?

For the purposes of the Act, a “non-Canadian” is defined as follows:³

• an individual who is not:
  1. a Canadian citizen,
  2. a person registered as an Indian under the Indian Act, or
  3. 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.

“Control” of a corporation has not yet been defined in the Act, but is expected to be fleshed out in the regulations.

What Type of Properties Are Affected?⁴

Non-Canadians will not be able to purchase detached houses or similar buildings that contain up to three dwelling units. Semi-detached houses, rowhouse 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. Notably, detached houses that contain more than three dwelling units are not captured by the Act.

Exceptions to the Act⁵

The following are exempt from the application of the Act:

• temporary residents within the meaning of the Immigration and Refugee Protection Act;⁶
• non-Canadians who purchase residential property in Canada with their spouse or common-law partner, if the spouse or common-law partner is:
  1. a Canadian citizen,
  2. a person registered as an Indian under the Indian Act, or
  3. a permanent resident of Canada; and
• foreign states that purchase residential property in Canada for diplomatic or consular purposes.

Offences and Penalties⁷

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: (1) guilty of an offence and (2) is liable on summary conviction to a maximum fine of $10,000.

Directors, officers, senior officials and managers of corporations can also be found liable if they aid or authorize a corporation to commit or aid in the offence, whether the corporation has been prosecuted or convicted. The superior court of the province in which the residential property is located may also, on application by the Minister, order the property to be sold in a manner and with conditions to be addressed in supporting regulations. Furthermore, upon the court-ordered sale of the property, the non-Canadian purchaser would not receive more than the amount paid for the property, and may even receive less.

This offence provision of the Act imposes a broad range of liability that is not limited to the contracting parties of an agreement of purchase and sale. It is currently unclear whether and under what circumstances any non-contracting party that is involved in a transaction, such as developers, mortgage agents, professional advisers, lawyers and others, may be considered to have been counselling, inducing, aiding, or abetting the contravention of the Act.

Takeaways for Developers, Vendors and Purchasers

Agreements of purchase and sale entered into that do not comply with the Act will not be deemed invalid simply due to such contravention of the Act.⁸ In effect, contracting parties will still be required to adhere to their contractual legal obligations. It may be prudent for contracting parties to negotiate contractual terms regarding the validity of agreements of purchase and sale contravening the Act. For example, participants in Canadian residential real estate transactions may seek to include contractual provisions confirming whether the purchasers are residents within the meaning of the Act and involve ancillary documents, such as requiring a statutory declaration or other evidence.

Developers, mortgage agents, real estate agents, lawyers and others should inform their respective staffs of the requirements of the Act to avoid potential liability by inadvertently entering into agreements of purchase and sale with non-Canadians. However, until the regulations are released, it is still unclear as to where the requirements of the Act and the scope of liability extend.

Meanwhile, the Act could face constitutional challenges on the basis that property rights fall under the purview of provincial governments, pursuant to Section 92 of the Constitution Act, 1867.

Many details about the applicability and enforceability of the Act are to be set by regulations in the coming months. The Aird & Berlis Real Estate Group will continue to monitor further developments. Please contact a member of the group for more information.

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