Complying with British Columbia’s new real estate owner reporting requirements will create a lot of legal work and raise the price of real estate transactions, lawyers say.
Currently, the Land Title and Survey Authority already holds the names of property owners, but the act aims to hold accountable beneficial ownership structures that are being used to hide the true identities of real estate owners, states the ministry. Under the new law, enacted May 16 but still awaiting regulations until it can take effect, those who own land in B.C. — either directly or indirectly or through corporations, trusts and partnerships — will have to report their identities to the government, which will create a publicly searchable registry.
“It’s going to be a huge undertaking,” says Maxwell Carroll, a partner at Lawson Lundell LLP in Vancouver, who does real estate acquisition, development and leasing throughout B.C. “I think it’s going to be just a massive amount of work for us and probably at a pretty high cost for clients.”
There are three aspects of the bill that will demand attention from lawyers: assisting clients on declarations when they acquire land, finding individuals behind each corporate entity or partnership and filing transparency reports for existing properties, says Carroll.
Housing affordability and transparency in the real estate market have been goals of B.C.’s nearly two-year-old NDP leadership. According to a February 2018 report from the B.C. government that detailed its plan to make housing more affordable, the province promised to tax speculators, increase the foreign buyers tax and expand it beyond Vancouver, boost other property taxes, close property tax loopholes, end hidden ownership, enhance provincial auditing and enforcement powers and work with the federal government to curb tax evasion and money laundering.
Michael Ventresca is an associate at Blake Cassels & Graydon LLP’s Vancouver office whose practice includes a wide range of commercial real estate matters. He says the Land Owner Transparency Act will “create a significant compliance exercise.”
“Most B.C. real estate lawyers and our clients will be used to collecting and reporting this information to the government through the Property Transfer Tax Act, but the LOTA disclosure obligations are more extensive. This will add to the time, cost and paper required to complete a real estate transaction in B.C.,” he says.
In an article about the act written by Ventresca and his colleague Steven Dhesi, the authors state that the reporting requirements exclude certain corporations including public companies, government entities, financial institutions, insurance companies and corporations owned by Indigenous nations. There are also exclusions for certain trusts, such as pension plan trusts, mutual fund trusts, charitable trusts, bankruptcy trustees and those owned by an Indigenous nation, they write.
Anyone deemed an “interest holder” under the act needs to disclose. For trusts, this will include trustees, those with a beneficial interest in the land or those who can revoke the trust. For a corporation, a shareholder owning 10 per cent or more or having 10 per cent or more of the voting rights or those with the ability to appoint and fire the majority of the board of directors are considered interest holders, the authors state.
Carroll notes that the government originally proposed setting the shareholder and voting rights reporting threshold at 25 per cent in its white paper on proposed changes that were provided for public comment in June 2018. Twenty-five per cent is also the threshold for beneficial ownership transparency amendments to the Canada Business Corporations Act and B.C.’s Business Corporations Act, he says.
Saravan Veylan, a partner at MLT Aikins LLP in Vancouver who practises real estate, financial services and corporate commercial law, says that, although the reporting requirements don’t appear to be onerous, they will raise transaction costs for clients.
“The cost of getting a deal done is going to go up,” he says.
There is also uncertainty as to what is an adequate investigation into corporate interest holders and trust beneficiaries, he says.
“What exactly practitioners have to do and reporting bodies have to do to satisfy the reporting obligations in respect of those trusts, particularly when beneficiaries have not yet been determined — which is possible under a trust — is a level of uncertainty that that we're going to have to work through when the regulations are published and when we have a clearer idea of what the forms look like,” Vaylan says.
It is also unclear how the new registry will affect the overall land-holding system, Veylan says, as B.C. uses the Torrens system, which is based on the indefeasibility of title. That which is on title is “everything that encumbers the property” and, if it is not “registered on title, an owner or transferee is not bound by it,” he says.
“So, given that there's a parallel register, which is outside the Torrens system, how do those two things mesh with each other? Is there any conflict there? And I think time will tell whether the integrity of the Torrens system can be maintained with a parallel register of beneficial interests,” Veylan says.