Prohibition on the purchase of residential property by non-Canadians

This prohibition applies to residential properties only and will therefore have no impact on commercial brokerage activities.

Already in fall 2022, the OACIQ, as regulator and member of the Real Estate Regulators of Canada, has undertaken steps with both the Canada Mortgage and Housing Corporation (CMHC) and the Minister in charge of enforcing this Act to obtain clarifications, especially regarding licensees' obligations under this new regulation.

The CMHC has published on its website information in this regard and frequently asked questions that reflect the position of the CMHC. We invite you to check out this article regularly: Ensuring housing market remains available to Canadians.

The Act in brief

The prohibition does NOT apply to:

• Canadian citizens
• Permanent residents
• Persons registered under the Indian Act
• Temporary residents within the meaning of the Immigration and Refugee Protection Act who satisfy the conditions set out in the Prohibition on the Purchase of Residential Property by Non-Canadians Regulations²
• Protected persons within the meaning of subsection 95(2) of the Immigration and Refugee Protection Act
• Individuals who are non-Canadians and who purchase residential property in Canada with their spouse or common-law partner if the latter is not subject to the prohibition
• Corporations incorporated under federal or provincial law, unless they are controlled by non-Canadians
• Foreign states purchasing residential property for diplomatic or consular purposes
• Other categories of persons covered by the implementing regulations.

Immovable (or real property) subject to the prohibition

• A detached house (or similar building), containing not more than three dwelling units
• A part of a building that is a semi-detached house or rowhouse unit
• Condominium unit

In addition, properties located outside of census agglomerations and census metropolitan areas (including recreational properties such as summer cottages and vacation homes) are not covered by the prohibition.

Definition of purchase (acquisition)

The Act focuses on the acquisition of the right of ownership through a purchase/sale real estate transaction.

The implementing regulations clarify that the acquisition of the right of ownership resulting from events such as death, divorce, separation, donation, etc. is not prohibited.

In a judgment rendered on January 31, 2023, the Superior Court of Quebec confirmed that the prohibition on the purchase of residential property by non-Canadians does not apply to a sale resulting from a promise to purchase signed by a non-Canadian prior to January 1, 2023.³

Therefore, if a promise to purchase has been accepted, with or without conditions, before January 1, 2023, this "purchase" is not covered by the Act and the parties may proceed with the signing of the deed of sale, which could take place after January 1, 2023.

Obligations of real estate brokers

Duty to inform

Under his general duty to inform⁴, the real estate broker must, at the first opportunity and in any event, inform his clients and unrepresented parties of the existence of the prohibition. It is strongly recommended that written evidence be kept indicating that the information on the existence of the new Act has been provided to the parties.
 

Duty to verify

Brokers are required to verify identity and legal capacity. As the Act currently stands, verifications do not cover the information necessary to determine subjection under the Act. However, if there is any indication or doubt as to whether the buyer is Canadian or subject to a prohibition under the Act, the broker must raise this issue and refer to a legal counsel.

The CMHC states in its article that it is the responsibility of non-Canadian buyers themselves to ensure that they are eligible to purchase a residential property while the Act is in force.

The following is also stated:

The Act provides industry professionals with the flexibility to manage compliance within their respective circumstances and does not impose information collection, processing or reporting requirements for lawyers, notaries, real estate agents or other professionals.

It is for these professionals to determine what, if any, measures may be required for them to meet their professional responsibilities and duties to their clients.

Duty to refer to an expert

If the stakeholders or parties to the transaction have questions about the buyer's status or the risk of penal liability for the seller in the event of a prohibited transaction, real estate brokers will need to refer them to a legal counsel.⁵

In addition, the parties may refer to the information provided by the CMHC.

Duty to withdraw in the event of a violation to the Act

Remember that a broker who advises, assists, incites or encourages a buyer to buy an immovable knowing that it is subject to a prohibition is liable to penal proceedings and a fine of $10,000. In addition, he may be subject to a disciplinary complaint for advising or encouraging a party to the transaction to perform an illegal act.⁶ Therefore, in situations where the real estate broker knows or cannot be unaware that the transaction is subject to the prohibition, but the party or parties still wish to proceed, proper practice would be as follows:

• If the buyer's broker knows (or cannot be unaware) that his client is subject to the prohibition, but the client still wishes to proceed with the purchase, he must terminate the brokerage contract to purchase for a serious reason by sending a written notice to his client.
• The seller's broker or the broker without a contract who knows (or cannot be unaware) that the buyer is subject to the prohibition must inform the parties. He must advise the seller to refuse any promise to purchase from a person subject to the prohibition. If the seller still wishes to sell, the seller's broker must terminate the brokerage contract to sell for a serious reason by sending a written notice to his client. The broker without a contract must end his business relationship with the potential buyer/seller and keep written proof to that effect.