What you need to know when purchasing real property in Québec. Julie Desrochers Alain Lalonde April 18, 2011

Transcription

1 What you need to know when purchasing real property in Québec Julie Desrochers Alain Lalonde April 18, 2011

2 The Cadastral System Land Registration System Québec land registration system was established in The cadastral system involves the elaboration by survey of an official plan by the Ministry of Natural Resources and Wildlife by which each separate emplacement is assigned a lot number. The survey plan indicates the dimension, area, shape and position of each property in relation to adjacent properties. 2

3 Methods of Registration Land Registration System Registration is effected through an electronic registration system or by paper registration sent to the registry office where the real property is located. Electronic registration is not yet mandatory. Electronic registration is not user-friendly for commercial real estate lawyers. There are too many requirements regarding the format of the documents filed electronically. Registration (either electronic or by paper) is usually obtained within a few hours. It might take up to 24 hours and even more at certain periods of time during the year to obtain confirmation of registration. 3

4 Purposes of Registration Land Registration System The Civil Code of Québec states publication of rights allows them to be set up against third persons and establishes their rank. Rights produce their effects between the parties even before the publication, unless the law expressly provides otherwise. 4

5 Presumption of Knowledge Land Registration System Registration creates a presumption of knowledge in the sense that any person may inquire at the registry office and learn of the registered right. This is a simple presumption refutable by anyone, with an interest to oppose it, who provides proof of rebuttal by the normal rules of proof and evidence. In 1994, when the new Civil Code of Québec came into force, the Government of Québec had the intention to establish an irrefutable presumption of knowledge of the existence of a right in the cases where the ownership is uncontested for ten (10) years. This amendment to the Civil Code of Québec never came into force. 5

6 Notarial Deed Land Registration System In Québec, the following deeds must be executed by notarial act en minute (in the presence of a Québec notary) on pain of absolute nullity: deeds of immovable hypothec, donations (personal or immovable property) and declarations of transmission of an immovable property in case of death. 6

7 Acquisitive Prescription Land Registration System A person who has for ten (10) years possessed an immovable as its owner may acquire the ownership of it upon judicial demand. The possession must be peaceful, continuous, public and unequivocal to produce effects in law. 7

8 Due Diligence Practices Off-Title Searches Type of searches: property tax certificates (municipalities, school commissions); municipality, local authorities (notices of non-compliance); hydro, gas (Hydro-Québec, Gaz Metropolitain), arrears certificates; Ministry of Sustainable Development, Environment and Parks (notices of non-compliance); Building code (Régie du Bâtiment), pending files; Labour standards (Commission des normes du travail), pending files; Occupational health and safety (Commission de la santé et sécurité du travail), pending files. 8

9 Off-Title Searches Due Diligence Practices An Act respecting Access to Documents Held by Public Bodies and the Protection of Personal Information: Pursuant to said Act, public bodies must respond no later than twenty (20) days from the date the request was received (section 47 of the Act). However, if the request cannot be processed within 20 days, the public body may extend the delay for a period of ten (10) days. Delay of response might be longer in some municipalities (Montréal) or certain public bodies. Due Diligence period of thirty (30) days: might be too short. 9

10 Title Searches Due Diligence Practices Title searches can be very expensive and time consuming in the Province of Québec, especially when the property was subdivided numerous times and when numerous transactions affecting parts of lots have taken place over the years. Scope of searches: we can search back to the deposit of the cadastre. However, we would normally cover the period running from 1964 to today. Delay: in some cases, it might take two/three weeks to prepare a title opinion. It is important to start the title work at the beginning of the due diligence period. 10

11 Title Insurance Due Diligence Practices Rapid growth in Québec during the last 10 years. Less expensive than title searches in some cases. Often required by lenders (securitized loans). Used to save time. Coverage for unmarketability of title and other matters such as existing zoning and defects that would be revealed by an up-to-date survey is available from various title insurers. 11

12 Zoning Information Due Diligence Practices Lawyers can obtain zoning information and can provide some analysis of zoning but that work is done most of the time by urban planners. 12

13 Certificate of Location Due Diligence Practices The certificate of location consists of a report and a plan stating the land surveyor s opinion on the current situation and state of an immovable property in relation to its ownership, the cadastre and the laws, regulations and bylaws which may affect it. While performing his survey to prepare a certificate of location, the land surveyor should take all the measurements and make all the calculations required to verify the occupation and the boundaries of the immovable property and situate them in relation to one another. 13

14 Certificate of Location Due Diligence Practices The purchaser would normally require from the vendor a current certificate of location. In certain cases, if an updated certificate of location cannot be delivered for closing, purchaser would require from vendor a solemn declaration stating that no modification to the building(s) has been made since the date of the original certificate of location. 14

15 Environment Due Diligence Practices Depending on the nature of the property, Phase I and Phase II Environmental Reports may be appropriate. Environmental reports are usually prepared by private consultants. They can be very expensive, especially for Phase II reports. 15

16 Legal Warranties under the Québec Civil Code Two legal warranties exist under the Québec Civil Code : the warranty of ownership; and the warranty as to quality. These warranties exist by operation of law and do not have to be specified in the deed of sale. 16

17 Warranty of Ownership The warranty of ownership assures the purchaser that : the property is free of all rights, except those declared by the vendor; the vendor has discharged the property of all hypothecs (mortgages), except those assumed by the purchaser; the property is not subject to any encroachment on the part of the vendor or a third party, except those declared by the vendor; and the property does not violate any restriction of public law, except those declared by the vendor or that the purchaser should have discovered. 17

18 Warranty of Quality Under the warranty as to quality, the vendor warrants to the purchaser that : the property is free from defects, existing at the time of the sale, that would render the property unfit for the use for which it is intended or which would so diminish its usefulness that the purchaser would not have bought it or paid so high a price if he had been aware of them. 18

19 Warranty of Quality The vendor is not bound, however, to warrant against a defect known to the purchaser or a defect that a prudent and diligent purchaser could have perceived. The fact that the vendor is unaware of the defect or that the defect does not become manifest until after the sale in no way reduces the warranty. However, if the vendor was aware of the defect, his liability would be increased to include, in addition to the reduction in value of the property, all other damages sustained by the purchaser. 19

20 Conventional Warranty The parties may in the deed of sale add to the obligations of the aforesaid legal warranty, diminish its effect or exclude it altogether, but in no case may the vendor exempt himself from his personal fault. 20

21 Waiving the Legal Warranty A vendor may not exclude or limit his liability unless he has disclosed the defects of which he was aware or could not have been unaware and which affect the right of ownership or the quality of the property. An exception may be made to this rule where the purchaser buys a property at his own risk and peril from a vendor who is not a professional vendor. 21

22 Land Transfer Duties and Taxes There are land transfer duties payable in the Province of Québec on the sale of real property at the rates indicated in the table shown hereafter. Land transfer duties are not payable at closing; rather they become payable after the registration of the deed of transfer and the amount is thereafter invoiced directly to the transferee by the relevant municipality. 22

23 Land Transfer Duties Consideration Rate Duties on that part of the basis of imposition which does not exceed $50,000: 0.5% $250 on that part of the basis of imposition in excess of $50,000 but does not exceed $250,000: 1.0% $2,000 on that part of the basis of imposition which is in excess of $250,000: 1.5% TBD for Montreal only: on that part of the basis of imposition which exceeds $500,000: 2% TBD 23

24 Land Transfer Duties There is an exemption from payment of transfer duties in, amongst others, the following cases: when the transfer is made by a transferor who is a natural person to a transferee who is a legal person of which at least 90% of the issued shares of the capital stock to which are attached full voting rights are owned by such transferor immediately after the transfer; when the transfer is made by a transferor that is a legal person to a natural person, if such person is, immediately before the transfer, the owner of at least 90% of the issued full voting shares of the capital stock of the transferor; and when the transfer is made between two closely related persons. 24

25 Land Transfer Duties There are no exemptions from payment of transfer duties in, amongst others, the following cases: a transfer to a transferee that is a partnership or a REIT; and a transfer between siblings. 25

26 Anti-Avoidance Provision Acquisition of shares of the company that holds the property When purchasing shares of the company that holds the property to avoid payment of land transfer duties, a purchaser should consider if Section of the Taxation Act (R.S.Q., chapter I-3) applies to the transaction. 26

27 Anti-Avoidance Provision Section of the Taxation Act (R.S.Q., chapter I-3) states the following : Where, at any particular time, control of a corporation is acquired by a person or group of persons, where an immovable has been transferred to the corporation in the 24 months preceding that time, where the transfer is exempt from the payment of transfer duties under Section 19 of the Act respecting duties on transfers of immovables (chapter D- 15.1) and where it may reasonably be considered that the immovable was transferred in contemplation of the acquisition of control of the corporation by the person or group of persons, the corporation shall pay to the Minister, within thirty days from the date of sending of a notice of assessment, special duties equal to 125% of the amount of the transfer duties that would have been payable following the transfer if the said Section 19 had not been applicable in respect of the transfer and, where the transfer is not registered, if it had been registered. 27

28 Goods and Services Tax and Quebec Sales Tax Sales Taxes GST : 5% QST : 8.5% Elections may be filed in most commercial real estate transfer transactions to avoid the payment of sales taxes. 28

29 Non-Resident Disposition Disposition of Real Property by Non-Residents Clearance certificates to be obtained from the tax authorities (Section 116 of the Income Tax Act (Canada) / Section 1101 of the Taxation Act (Québec). Until the clearance certificates are obtained, the following should be held in escrow by notary or escrow agent: 25% of the Purchase Price Federal 12% of the Purchase Price Québec 37% of the Purchase Price Combined 29

30 Thank You Julie Desrochers (514) Alain Lalonde (514) montréal ottawa toronto hamilton waterloo region calgary vancouver moscow london