Monthly Archives: December 2018

Proptech in 2019 & Electronic Contracts

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What-Is-Proptech-and-Which-Players-You-Should-Follow-in-Asia-1440x564_c“Proptech” is a new term that stands for property technology. It encompasses all types of technology used in commercial and residential real estate, from chatbots used by Realtors®  on their websites to smart devices to control property functions, such as building access, to software used to analyze and manage a property, tenant relations and leases.

The Proptech industry has seen accelerated growth in the past few years growing from $4 Billion to almost $8 Billion, and advancements continue to be made in many areas.

At the same time, the laws around the use of these technologies continue to develop as law makers craft regulations around the incorporation of new technologies in real estate. Nowhere is that more apparent than in the use of electronic signatures and contracts.

The first and most fundamental question is this: Are electronic contracts valid?

The UN Model Law on Electronic Contracts was first adopted in 1996 and has been embraced by most jurisdictions in the Western World. Generally speaking, electronic contracts are valid where there is an explicit offer and acceptance to the contract. One notable exception as it pertains to real estate is when the contract must be registered. For example, electronic signatures and contracts are valid on leases that are not registered in the land titles office and on purchase and sale documents (including offers and counter offers). However, to register the transaction on title requires original signed documents rather than an electronic signature.

There are other instances where electronic contracts are not valid, such as wills, powers of attorney, certain business and financial documents, etc. so it is best to consult with your lawyer to determine your use of electronic contracts and signatures.

Is there a requirement to maintain electronic data for a certain time period?

Since electronic contracts are often viewed the same as paper contracts, the retention guidelines for electronic contracts (and electronic signatures) would be the same. Therefore, it is important to ensure proper back-up and retention of all electronic documents, and the keepers of these documents must be aware of the retention requirements.

The best practices for using electronic contracts and signatures include:

  • an explicit understanding and prior notification between the parties that an electronic contract and electronic signatures (“e-signatures”) will be used.
  • That all privacy regulations are upheld regarding the contract and the gathering of e-signatures, and
  • maintaining accurate records concerning the use of the contracts.

How does all this apply in commercial real estate?

Obviously, the convenience of being able to conduct a wide variety of activities and transactions electronically can speed a transaction. The use of electronic signatures also means that the parties are no longer desk-bound. They can conclude a transaction anywhere, and at any time.

One frequent downside inherent in electronic contracts is that they are not tactile.  Many times the contract is misfiled, deleted or simply forgotten since it can easily reside inside an email or a misnamed computer file.  On less sophisticated systems, such as stand-alone computers, laptops and mobile devices, system failures or upgrades and result in the complete data loss of the contract.

Large organizations, such as landlords and occupiers with multiple locations, may have entire departments dedicated to the retention, management, and safekeeping of all their contracts, including electronic contracts.

Entrepreneurs and smaller operations, such as many tenants, often do not have these types of systems and policies in place, and are at a greater risk of losing data, or – more importantly – losing track of important contract information, such as important lease obligations and rights.

This is understandable, since the ‘virtual’ contract is often out of sight and out of mind.  Many times, the tenant’s lease and commercial space is taken for granted as something that was completed previously (perhaps the lease was signed years ago) in order to allow the tenant to operate daily, today. It simply is not top of mind. The risks of this can be devastating however. Imagine that you have an option to renew the lease, for example. If you miss the time to exercise that option you could lose your space – and that could mean the end of your business.

To solve this very real and prevalent problem it is important to keep track of lease milestones, obligations and rights as well as maintain a back up of your lease contracts – or have someone do that for you.

We offer our clients a simple and affordable lease management service to handle all this for you, and more; for less than 50 cents per day. To learn more CLICK HERE.

Don’t Simply Sign Estoppel Certificates

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The article below, by two lawyers at BLG in Canada, and reprinted with their permission, highlights the pitfall of simply signing an estoppel certificate provided by the Landlord.

An estoppel is a concept that, in certain circumstances, restricts a party from relying on its full legal rights. A lawyer conversant in contract law will tell you that there are many different types of estoppels and that there is no one universally accepted form of estoppel. However, the seemingly simple one or two page estoppel is a very powerful legal document, as you will see.

For the purposes here though we will stick with estoppels as they are commonly used in commercial real estate. The most common estoppels are provided by the Landlord to the Tenant when the Landlord is engaged in a transaction whereby another third party is going to rely on the lease contract provided to it by the Landlord. Generally, this happens if the Landlord is selling the property and the intended purchaser wants to know that the lease contract is the only agreement between the Landlord and you, the tenant; or when the Landlord is seeking financing (or refinancing) and the lender also wants assurances that the contract is the only valid agreement in existence.

You can understand why a third party wants this verification. Most landlord-provided estoppels outline the basic business terms, such as the length of the lease, the rent being paid, etc. The document the landlord wants you to sign also contains seemingly innocuous language; which can be problematic as the article points out.

Therefore, it’s important to understand from a business and real estate perspective what should be included in the estoppel if it is not clear, and what should not be included. We recommend that any estoppel you receive from the landlord be reviewed by a commercial real estate consultant – not a real estate agent as they do not deal with estoppels; and after that review, it should be reviewed by a good commercial real estate lawyer, such as either of the article authors.

Before we get to the article itself, it may help to look at a case where the Greenstead Consulting Group was asked to review a landlord’s standard estoppel provided to a tenant client, because the current landlord was selling the property.

The estoppel contained language that said neither the tenant nor landlord were in default of the lease. We knew from prior correspondence that the floor of the premises was heaving and a technical study done by the landlord revealed sub-standard soils compaction below the on-grade slab.

After we reviewed the lease, we also noted that the landlord was solely responsible for ‘latent defects’ in the construction of the building.

The landlord was pressing our client, the tenant, to sign what the landlord referred to as a ‘clean estoppel’ (without any changes to the form the landlord provided) within the 10 days provided in the lease. As a directly related aside to the issue at hand, we negotiate lease wording amendments on behalf of tenant clients. In the estoppel section of the lease we add the ability for the tenant to amend an estoppel form provided by the landlord. Watch for language that states the tenant will sign the form of estoppel attached to the lease. That could be problematic.

Working with our client’s in-house general counsel, we advised our client to strike certain provisions of the estoppel and provide an addendum outlining the issue, and past correspondence. We advised our client that without doing this, we were concerned that a subsequent owner would say the tenant was stopped (estopped) from making a claim for repair by the property purchaser, since the current owner had not fixed the issue.

Peter D. Morris, CEO, Greenstead Consulting Group

Here is the Article:

The Ontario Superior Court’s judgment in 1960529 Ontario Inc. v. 2077570 Ontario Inc., 296 Brunswick LP Corp., and CMLS Financial Ltd. 2017 ONSC 5254 provides a cautionary reminder to tenants to carefully review their lease before signing an estoppel certificate.

Background

1960529 Ontario Inc. carried on business as a bar and game arcade using the name Tilt Arcade Bar (“Tilt”). Tilt, the tenant, leased the first floor of the property located at 296 Brunswick Avenue, Toronto, from the landlord, 2077570 Ontario Inc. (“207”). The lease between Tilt and 207 contained a right of first refusal provision which stated that 207 agreed to provide Tilt with a copy of an offer to buy the building prior to accepting any offer for the sale of the property and that Tilt would have 24 hours to provide 207 with an offer that was the same as the offer that 207 intended to accept.

On October 17, 2016, 207 entered into an agreement of purchase and sale with 296 Brunswick LP Corp (“Brunswick”) for the sale of the property. On February 14, 2017, the President of 207 attended at the property with a form of estoppel certificate informing Evan Oswald (“Oswald”), Tilt’s President, that the property had been sold and that the estoppel certificate was required immediately to effect the assignment of the lease from 207 to Brunswick.

The estoppel certificate was addressed to CMLS Financial Ltd., Brunswick’s lender (the “Lender”). 207 was identified as the landlord, and Tilt was identified as the tenant. The estoppel certificate confirmed that there were no defaults under the lease. No reference to the right of first refusal was made in the estoppel certificate. Oswald, who didn’t realize he had a right of first refusal under the lease, signed the estoppel certificate.

The property was transferred from 207 to Brunswick on February 17, 2017. Brunswick then exercised a demolition provision in the lease and gave Tilt notice of termination. It was only at this point that Tilt realized that it should have been given the right to buy the property pursuant to the right of first refusal in the lease. Tilt commenced an application seeking relief in support of its claim for enforcement of a right of first refusal. Tilt also brought a motion for injunctive relief restraining Brunswick from demolishing the property, which was the subject of this decision.

Court Decision

The Court denied Tilt’s motion for an interlocutory injunction on the basis that there was no serious question to be tried. The court explained that Tilt waived its right of first refusal by signing the estoppel certificate and confirming that there was no default under the lease at the time the estoppel certificate was signed (i.e. the landlord was not in breach of any of its obligations relating to the right of first refusal). The Court stated that parties to a commercial real estate transaction are entitled to rely upon an estoppel certificate to prevent the party signing the certificate from taking a position that is contrary to the statements therein. By signing the estoppel certificate, Tilt must be taken to have known that the parties affected by the sale of the property would rely on the contents thereof.

Comment

This case is an important reminder of what can happen to tenants when they fail to review their lease before signing an estoppel certificate. Tenants can be viewed to waive their existing rights if they are not careful. In this situation, Tilt could have potentially prevented Brunswick from purchasing the property had it identified the landlord default in the estoppel certificate before signing.

This case is also a reminder that even though an estoppel certificate is addressed to a particular entity/individual, it does not necessarily prevent a non-addressee from relying on the estoppel certificate.

Tenants should always be mindful of all of their rights under their lease and ensure that they are aware of the purpose for which an estoppel certificate is being sought. This will allow tenants to see the “big picture” relative to their existing leasehold rights.

Authors

Richard A. Manias 
RManias@blg.com
416.367.6668

Anthony Deluca 
ADeluca@blg.com
416.367.6323

WHILE YOU ARE HERE:

The Greenstead Consulting Group provides a host of services to commercial property tenants. In fact, we act as your Outsourced In-house Corporate Real Estate Department. To learn more simply click HERE.

Own Land in Ontario? December 10, 2018 is the Deadline to Register Your Interest

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In December 2016, new obligations were imposed via amendments to the Ontario Business Corporations Act (the “OBCA“) and other Acts.

The changes cover both existing and newly incorporated corporations. The obligations already apply to all Ontario corporations incorporated after December 10, 2016. However Ontario corporations incorporated before December 10, 2016 were given a two-year grace period that ends today December 10, 2018.

Under the changes, the register of a corporation’s ownership interests in land in Ontario must:

  • identify each property owned by the company;
  • be kept at the company’s registered office; and
  • show the date the company purchased the property, and the date it disposed of the property, if applicable.

I’ve been advised that since the act doesn’t define “ownership interest”, companies should keep the required information for both registered interests and their beneficial interests in Ontario property.

The changes to the OBCA also require that the register contain any deeds, transfers or similar documents that contain any of the following:

  • the municipal address;
  • the Registry or Land Titles Division and the property identifier number (PIN);
  • the legal description; and
  • the assessment roll number.

Fines and other penalties for not maintaining these records for individual officers and directors could be up to $2,000, and jail time of up to one year. Corporation could be liable for fines up to $25,000.

Additionally, if a company isn’t current with their record-keeping requirements, the company may be unable to state that they are compliant with all applicable laws when it comes to financing, obtaining insurance or a sale. Corporate purchasers of land in Ontario are advised to obtain a rep and warrant from the vendor of compliance to the amendments and to add the need for the register to their purchase documentation checklist.

BC’s Speculation and Vacancy Tax Act

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The following is an article by two lawyers at BLG in Vancouver, reprinted with their permission. Where I have added commentary I start with my initials “PDM:”

The speculation and vacancy tax is different from the City of Vancouver’s Empty Homes Tax, which is a municipal levy. If you own residential property in Vancouver, you may have to pay both taxes.

The provincial tax affects property in the following areas, according to the government website:

Reserve lands, treaty lands and lands of self-governing Indigenous Nations are not part of the taxable regions.

Islands that are accessible only by air or water are not part of the taxable regions.

Some residential properties are excluded from the speculation and vacancy tax, even though they are located within a taxable region. These include residential properties owned by:

  • an Indigenous Nation
  • municipalities, regional districts, governments and other public bodies
  • registered charities
  • housing co-ops
  • certain not-for-profit organizations

Here is the BLG article:

A new Speculation and Vacancy Tax Act was recently passed by the B.C. legislature and received Royal Assent on November 27, 2018. The new tax is an annual tax on residential property located within B.C.’s major urban centres. Don’t let the name fool you — the tax is more of a vacancy tax on underutilized properties than it is about speculation. Accordingly, those that do not consider themselves speculators may still be subject to the tax. Foreign owners and individuals living in B.C. but with a spouse working abroad are also targeted.

Property owners within the City of Vancouver may already be familiar with the city’s empty homes tax. These property owners should not expect uniformity between the two tax regimes; these are distinct taxes enacted by separate laws, each with its own distinct exemptions and requirements. Being exempt from one does not necessarily mean that you will be exempt from the other.

PDM: As I note above, property owners in the City of Vancouver may face both taxes.

We outline some key information below.

Deadline for new property declaration

Property owners will have to make an annual declaration with the first being due by March 31, 2019 in respect of the 2018 calendar year. If any speculation and vacancy tax is owing, payment will be due by July 2, 2019.

PDM: This is the date property taxes are also due.

The declaration can be completed online or over the phone. The registration system is expected to open on January 18, 2019.

PDM: Here is the link to the Declaration. It is exceptionally important to note that all residential property owners in areas affected by the tax will receive an annual declaration form from the government (estimated to be in mid-February), and all owners will be required to complete the form, whether or not they may be subject to the tax.

Foreign owners and satellite families

One of the province’s purported tax target is foreign owners and satellite families. Foreign owners are property owners who are not Canadian citizens or permanent residents. A satellite family is an individual, together with his or her spouse, who do not report a majority of their income on a Canadian tax return.

If you have a spouse who lives, works and pays tax in a jurisdiction outside of Canada, you will need to carefully consider these rules; their application will result in stricter conditions to claim exemptions and higher tax rates on vacant property.

Ownership structure

Where there are multiple owners on title, each owner will be required to file a property declaration.

Where the owner is a corporation, a partner of a partnership or a trustee of a trust, you will need to look through these entities and carefully consider the individual(s) that have the ultimate interest or control in the property. If any such individual(s) is a foreign owner or member of a satellite family, this will have implications for claiming exemptions and on the tax rate you pay. Even where such an individual resides within Canada but outside of B.C., this may jeopardize the availability of certain exemptions.

PDM: Previously, the BC Government enacted a new regulation pertaining to the disclosure of Beneficial Ownership of Real Property. You can read more about it in our article via this LINK

Tax rates

All owners of vacant properties, regardless of residency or citizenship, will pay tax at a rate of 0.5 per cent for the 2018 calendar year.

Beginning in 2019, the tax rate on vacant property is 0.5 per cent for B.C. residents and Canadian citizens or permanent residents. Foreign owners and members of satellite families pay a 2 per cent rate.

The tax is calculated as a proportion of the assessed value of the property, which can be determined by searching your address on the  B.C. Assessment website.

Exemptions

All owners of residential property within a specified region will pay the speculation and vacancy tax unless an exemption can be claimed. There are a number of exemptions available, each which require specific conditions to be met. The most common exemptions will include where a property was used as a principal residence, was rented out to a tenant (note that short-term rental arrangements do not qualify), where construction of a new home or substantial renovations were carried out, or where the property was acquired within the year.

The specific requirements for each exemption should be carefully considered with special attention being paid to defined terms and interpretive rules. This is especially true where the owner includes a corporation, partnership or trust, or where any foreign owners, members of satellite families or non-B.C. residents are involved.

PDM: Please consult a competent real estate lawyer, such as the authors of this article (below).

Tax credits

Those that must pay the speculation and vacancy tax may be able to claim a tax credit on any income they have in B.C.

Authors

Scott Gorski                          Peter J. Glowacki
SGorski@blg.com                   PGlowacki@blg.com
604.640.4031                          604.632.3507

WHILE YOU ARE HERE:

Tim Down and I wrote an excellent ebook called How to Successfully Appeal Your BC Property Assessment. It is specifically for residential property owners in BC.

In it we show you how the assessment process works, how you can research if you should appeal your assessment, how to craft your submission so you have the highest probability of success and how to present that submission. All in a proven step by step format that I have personally used to save hundreds of dollars in my own residential property tax.

You can find it HERE.