Do You Speak Legalese?

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This article was written by Martin A. Schwartz, Partner at the law firm Bilzin Sumberg, and is reprinted here with his permission. His primary area of focus is Real Estate law and he can be reached at 305-350-2367 or mschwartz@bilzin.com

Peter Morris’ comments: As someone who must read, and interpret, leases and purchase and sale documents daily I agree with him. I add the word “interpret” because of the ambiguity in most documents. In some cases, the drafter of the document inserts words specifically so the true meaning of the concept can be read in multiple ways. I call these ‘wiggle words’, and I root these out for my clients whenever possible. Three (3) Cheers for Martin for his clear thoughts on this matter in his article that starts now.

Each profession has its own jargon but most professions rely on modern English as their base. Real estate and other transactional lawyers, those who draft legal documents, seem to be the exception. This is a strange phenomenon since most litigators, those attorneys who write only for fellow lawyers (i.e., judges), seem to have little problem writing in modern English. However, most real estate and other transactional lawyers whose work-product involves nonlawyer parties, usually find it difficult to express their thoughts in modern English. Instead, they rely on a strange language referred to as “legalese” to convey their message.

Merriam-Webster defines “legalese” as follows: “the language used by lawyers that is difficult for most people to understand; legal jargon.”1 The Oxford Guide to Plain English describes it somewhat differently:

“Fog in the law and legal writing is often blamed on the complex topics being tackled. Yet when legal texts are closely examined, their complexity seems to arise far less from this than from unusual language, tortuous sentence construction, and disorder in the arrangement of points. So the complexity is largely linguistic and structural smoke created by poor writing practices.

“Legalese is one of the few social evils that can be eradicated by careful thought and disciplined use of a pen. It is doubly demeaning: first it demeans its writers, who seem to be either deliberately exploiting its power to dominate or are at best careless of its effects; and second it demeans its readers by making them feel powerless and stupid.”2

William Safire, a former op-ed columnist with The New York Times, describes it more humorously: “[L]egalese often has the virtue of eliminating ambiguity, and should be read more as a mathematical equation than as prose, anything herein to the contrary notwithstanding.”3

Legalese is a language that relies on archaic language, poor grammar and sentence structure, repetition, surplus language, and legal jargon. The predicate for use of legalese seems to be that the parties will be represented by attorneys, and their attorneys will understand the documents even if their clients cannot. Although such an assumption may assist in promoting legal employment, it appears no more defensible than having legal documents written in Arabic in reliance on the parties using persons familiar with Arabic to explain the contents of the documents to their clients. Since legal documents will govern the rights and obligations of the parties for whom they are written, it seems only proper that such parties should be able to read and understand them. The use of legalese has been criticized by the courts: “[This is a] document checked full of legalese that can make a Byzantine scholar proud.”4

Some legalisms seem to be going out of vogue. Does anyone use “the party of the first part” and “the party of the second part” to reference the parties to an agreement? Use of these terms allows the drafter to avoid identifying the parties throughout the document, but to an untrained reader, it may be unclear which party is obligated to which obligations under the agreement.

Other terms seem to have survived the transition from the age of the bow and arrow to that of automatic weapons. Many drafters continue to use terms like “witnesseth” and recitals preceded by the term “whereas.” Frequently, last paragraphs in agreements conclude with “In witness whereof.” One may well wonder if such drafters think it is essential their documents look like legal proclamations intended to be admissible in the English courts of the 14th century or be in a form sufficient to be affixed to the nearest tree. And what about title affidavits that conclude with the phrase “further affiant sayeth naught”? This last phrase adds nothing to the affidavit that a period at the end of the preceding sentence would add, but it does perhaps provide the drafter with the comforting feeling that the affidavit is a “legal document.”

Attorneys do not seem to question why is it necessary to use language from the age of Shakespeare to express their thoughts. Such archaic language is nowhere else found in modern writing, and it surely does not improve the readability of the document in which it is contained.

Another tenet of legalese involves repeating numbers with Arabic characters and in words. It might not be necessary to provide for “a ten (10) day notice” rather than “a 10-day notice” but a reader seeing both the character and word will appreciate that he or she is reading a legal document. This has been referred to as the “stupid reader syndrome” since it appears to be predicated on the assumption that the reader will not be able to understand a number if it is only mentioned once. A danger, however, of this needless repetition sometimes appears in documents when the character and word do not match, e.g., “ten (15) day period,” which presents an interpretive problem as to which number is correct. This needless repetition is so engrained in the legal vocabulary that a request to a legal secretary to transmit two copies of a survey will appear as “enclosed are two (2) copies of the survey.”

Perhaps the hallmark of a legal document is the inclusion of “h” words. The words “herein,” “hereto,” “hereof,” and “hereinafter” are the staples of drafting in legalease. These words, other than “hereinafter,” defy precision because it is never clear whether they are referencing a particular paragraph, section, or the entire agreement. Typically the use of such language requires the drafter to add a separate definitional section to clarify their meaning because of their latent ambiguity. You will not see these words used in common parlance or even in nonfiction writing except perhaps the use of “hereinafter” referencing an existence beyond the grave. But these words are typically liberally sprinkled throughout a document serving as a beacon to identify the document: “This is a legal document!”

Another frequent device for drafting in legalese is the use of the expression “provided, however, that….” This phrase serves to introduce an exclusion to the immediately previously expressed idea. Although one may substitute a period for this entire phrase and follow with the start of a new sentence with the same effect, the use of this term allows the draftsperson to establish his or her credentials as a lawyer and, as a side benefit, permits drafting run-on sentences galore. One can test the elimination of this phrase by substituting a period before “provided, however, that…” and determine its absence has no effect on the meaning of the paragraph but only serves to increase its readability.

Legalese embraces repetition: one word is good; six words are better. Why refer to the “provisions” or “terms” of an agreement when you can mention the “terms, provisions, covenants, agreements, representations, and warranties” of an agreement? Would anyone without legal “training” think that the terms of an agreement would not include any representations, warranties, or covenants in the agreement? I think not, but verbosity is a preferred drafting technique.

Another form of repetition frequently utilized is couplets: two words used in conjunction when a single word will convey the same message. Frequently used couplets include: “terms and provisions,” “good and valuable,” “covenants and agreements,” “free and clear,” “each and every,” and “any and all.” Many attorneys sprinkle these liberally into their drafting so the reader will understand the document was drafted by a lawyer.

Related to repetition is the inclusion of unnecessary extra language. In referring to exhibits and schedules in a document, the drafter will frequently qualify such exhibits or schedules with the phrase “attached hereto and incorporated herein by reference.” It is not clear whether such a phrase has any legal effect. Would a reader think that an exhibit or schedule appearing at the end of a document and referenced in the document might be a stapling error? That is, it was never intended to be part of the agreement. Or that such documents were merely attached to the document to increase its length?

The use of legalese is perpetuated by reuse of form documents replete with legalese. New lawyers instructed to use form documents are inculcated into the use of archaic language, repetition, and run-on sentences. It has been noted that there is no economic incentive to “clean up” these documents by spending extra time merely for the sake of readability.5 Even lawyers conscious of the use of legalese frequently avoid removing such language in the haste to produce a document for distribution. Will Rodgers famously noted, “If I had more time, I would have written a shorter letter.”

There is a perception among new lawyers, and even among seasoned lawyers, that writing in plain English dumbs down the language of the instruments. This is surely the case in some consumer forms in substituting “I” and “you” for “buyer” and “seller.” However, in response, it has been noted that:

“[W]riting in plain English need not mean giving up sophisticated use of language and affecting a chatty informality. On the contrary, it requires sophistication to produce documents that are consistently coherent, clear and readable. By contrast, this “specialized tongue” of lawyers, “legalese,” may even be easier to write because it relies on convention instead of thought. At best, however, the result is wordy, pompous, and dull. At worst it is unintelligible.”6

Does legalese really improve the content? As an example of how legalese affects readability, below are two short paragraphs. The first is written in English and the second re-written in legalese.

Jim had the flu and went to see Dr. Jones. The doctor told Jim he would be better in 10 days if Jim stayed home, drank liquids, and slept for eight hours each night. If his condition did not improve by the end of 10 days, the doctor said he would prescribe antibiotics.”

Jim had the flu (hereinafter referred to as the “Disease”) and went to see Dr. Jones (hereinafter referred to as the “Doctor”) and the Doctor told Jim that Jim would be better in ten (10) days, provided, however, that (i) Jim stayed home, (ii) Jim drank liquids, and (iii) Jim slept eight (8) hours each night (hereinafter collectively referred to as the “Remedial Conditions”) and provided further that if by the expiration of said ten (10) day period and full and complete fulfillment of the Remedial Conditions the Disease was not fully or partially abated to the full and complete satisfaction of the Doctor, in the Doctor’s sole and unfettered discretion, then the Doctor would prescribe antibiotics.

In a survey in 1988 sent to 1,116 Florida judges and lawyers selected at random that contained six phrases written in two different styles without identifying legalese but only a “test of language trends in the legal profession,” the preparer of the survey received 628 responses: 352 came from judges and 279 from lawyers. The judges preferred plain English in 86 percent of their responses and the lawyers in 80 percent.7

The courts have been critical of the use of legalese.8 Is there any downside to use of such language? If ordinary individuals not represented by an attorney are intended to be bound by legal instruments not otherwise decipherable as written in the English language, courts have refused to enforce such agreements to the detriment of the drafters.9

Beyond the issue of enforcement, why is it necessary to draft documents far removed from common English? Why does the poor use of the English language with run-on sentences and unnecessary repetition make a document legal? In surveys of judges and attorneys, the overwhelming percentage of respondents opted for plain English over legalese.10

Any real estate attorney believing use of legalese is benign should be ordered to review and decipher language appearing in many securitized financing documents. There are numerous examples in such documents when one sentence can run an entire page.11 It is frequently impossible to understand the content of any provision with a single reading.

Consumer groups have been struggling for years to require consumer documents to be written in plain English. Since the world outside of the legal profession operates using plain English, it is difficult to justify using a different language to create enforceable legal rights and obligations. In some cases, the reward for using legalese is an unenforceable agreement.12

1 Merriam-Webster’s Learner’s Dictionary, “Legalese.”

2 Martin Cutts, Oxford Guide to Plain English (3d ed. 2009).

3 William Safire, Safire’s Political Dictionary (Rev. ed. 2008).

4 In Re Benninger, 357 B.R. 337 (Bankr. W.D. Pa. 2006). See also Gelinas v. State, 398 S.W. 3d 703 (Tex. Crim. App. 2013) (Cochran concurring opinion) (“These instructions are 100 [percent] legalese. They make no sense.”).

5 See Hills, Why Contracts are Written in “Legalese,” 77 Chicago-Kent Law Rev. 58 (2001).

6 Barbara Child, Language Preferences of Judges and Lawyers: A Florida Survey, 64 Fla. B. J. 32 (Feb. 1990).

7 Id.

8 State of Wisconsin v. Eason, 629 N.W.2d 625 (Wisconsin Sup. Ct. 2001) (dissenting opinion) (“The warrant and affidavit replete with terms normally found in attorney-drafted documents including “whereas,” “curtilage,” “to-wit” and other such similar terms. . . . Indeed law students have been taught for at least the last 50 years to avoid this kind of legalese.”); But see Bo Bingham, Lawyers Speak “Legalese” for a Reason, The Legal Lowdown (Oct. 6, 2015), http://www.thespectrum.com/story/life/features/mesquite/2015/10/06/lawyers-speak-legalese-reason/73460860/ (discussing the virtues of legalese).

9 See In Re Benninger, 357 B.R. 337.

10 See Kimble & Prokop, Jr., Strike Three for Legalese, Michigan B. J. 40 (Mar. 2014); Barbara Child, Language Preferences of Judges and Lawyers: A Florida Survey, 64 Fla. B. J. 32 (Feb. 1990).

11 For example: “‘Certificateholder’: With respect to any Certificate, the Person whose name is registered in the Certificate Register (including, solely for the purposes of distributing reports, statements or other information pursuant to this Agreement, Beneficial Owners or potential transferees of Certificates to the extent the Person distributing such information has been provided with an Investor Certification by or on behalf of such Beneficial Owner or potential transferee); provided, however, that, except to the extent provided in the next proviso, solely for the purpose of giving any consent or taking any action pursuant to this Agreement, any Certificate beneficially owned by the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor, a manager of a Mortgaged Property, a Mortgagor or any Person known to a Responsible Officer of the Certificate Registrar to be an Affiliate of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor, a manager of a Mortgaged Property or a Mortgagor shall be deemed not to be outstanding and the Voting Rights to which it is entitled shall not be taken into account in determining whether the requisite percentage of Voting Rights necessary to effect any such consent or take any such action has been obtained; provided, however, that for purposes of obtaining the consent of Certificateholders to an amendment of this Agreement, any Certificate beneficially owned by the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor or an Affiliate of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator or the Operating Advisor shall be deemed to be outstanding, provided that if such amendment relates to the termination, increase in compensation or material reduction of obligations of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator, the Operating Advisor or any of their Affiliates, then such Certificate so owned shall be deemed not to be outstanding; provided, however, if the Master Servicer, the Special Servicer or an Affiliate of the Master Servicer or the Special Servicer is a member of the Controlling Class, it shall be permitted to act in such capacity and exercise all rights under this Agreement bestowed upon the Controlling Class; provided, further, if an Affiliate of the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator or the Operating Advisor has provided an Investor Certification in which it has certified as to the existence of an Affiliate Ethical Wall between it and the Depositor, the Master Servicer, the Special Servicer, the Trustee, the Certificate Administrator or the Operating Advisor, as applicable, then any Certificates beneficially owned by such Affiliate shall be deemed to be outstanding.”

12 See Paladino v. Avnet Computer Techs, 134 F.3d 1054 (11th Cir. 1988); Nicosia v. Wakefern Food Corp., 136 N.J. 401, 643 A.2d 554 (N.J. 1994).

This article was first published in the April 2017 issue of The Florida Bar Journal, Volume 91, No. 4.

The Ties That (May) Bind: ensuring letters of intent do not impose binding obligations on parties

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The following article is reprinted with permission from the authors at McCarthy Tétrault. Their contact information is listed at the end, so you may contact them directly concerning this or other legal matters you may to discuss with them.

From our business perspective the three points that really stood out for those in the commercial real estate field, are the following:

1. Ideally any matters that are to be legally binding, such as a confidentiality agreement, and exclusive negotiation; should be separate from the LOI itself and needs to executed by the parties to that agreement – NOT the real estate agent, who may typically draft, and sign the LOI to advance an understanding of a negotiation.

2. Your actions, as an agent for your client, cannot be inconsistent with the intent of the LOI being non-binding.

3. Although not mentioned in this article, as we have stated many times before, it is vitally important to prominently note that the LOI is NON-BINDING, and you include a paragraph in the LOI letter noting that your client has not reviewed or approved of the contents of the LOI the agent is drafting.

Here is the article:

Non-binding letters of intent (“LOIs”), which sometime take the form of ‘indicative term sheets’ or ‘memorandums of understanding’, can be useful tools to start negotiations between parties in a commercial transaction. These documents, typically lay out the principal terms of a transaction and facilitate negotiations of a binding agreement between the parties.

LOIs are most useful when parties can set forth the main points of a proposed deal, such as the structure of the transaction or purchase price arrangements, without committing to a legally binding contract. However, recent Ontario jurisprudence confirms that, based on certain language of the LOI or the behaviour of the parties, LOIs may be interpreted as binding even where the parties explicitly intend for them not to be. As such, it is key to draft the LOI with purpose and be mindful of your actions during negotiations.

Risks and rewards of LOIs

There are several important advantages to using an LOI in the course of a transaction. Entering into an LOI signals to the parties – and in certain instances to the public – that the parties are serious about the potential deal, and it lays a foundation to further negotiation, thus creating deal momentum. An LOI also allows parties to set out their basic understanding of the key business terms they want to achieve before investing time and money into hiring a team of advisors and negotiating the full deal. The increasingly popular “Hybrid” LOIs, or LOIs that have both binding and non-binding terms, help the parties protect themselves during negotiations, such as through committing to confidentiality, exclusivity and non-solicitation terms.

Signing an LOI may also come with some hazards. Negotiating through an LOI may increase the costs and tensions of a transaction by requiring a separate round of negotiation. LOIs, which by their nature are shorter than definitive legal documents, can be internally incoherent and lend themselves to varied interpretations and expectations by the counterparties. An LOI may also create unintended disclosure obligations for reporting issuers by triggering material change and/or early warning reporting. The most critical risk of an LOI, however, is the possibility of a binding obligation being unintentionally imposed on the parties. In the private equity space, this can be of particular concern given the prevalence of investor or third party rights of first refusal that could be triggered by a party inadvertently creating binding obligations. The current case law on this issue is summarized below.

Recent developments in Ontario jurisprudence

As discussed in our recent Canadian M&A Perspectives blog post, Canadian common law courts have not formally recognized a general pre-contractual obligation to negotiate an agreement in good faith, however the Supreme Court has refrained from definitively indicating that such a duty might not be recognized in the future[1] and in certain provinces, such as Ontario, such a duty has been recognized in instances a “special relationship” exists between the parties. Our aforementioned blog post delineates a list of factors which may influence a court’s determination of whether a duty to negotiate in good faith exists on a case-by-case basis, including after an LOI has been signed.

Ontario courts have been more definitive in establishing when binding obligations may arise from a signed LOI. In Wallace v. Allen, the Ontario Court of Appeal held that an LOI must be read as a whole, with an eye to the presence of contractual language.[2] In the LOI in Wallace, the clause “this letter of intent must be reduced into a binding agreement of purchase and sale by the parties within the next 40 days” demonstrated a clear intention of the parties to be bound.[3] However, the Court of Appeal also held that general use of “the language of contract”, such as “it is agreed”, “upon acceptance” and “this agreement” created a binding implication even in the absence of language as unambiguous as the clause above.[4] The Court of Appeal also considered the behavior of the parties in making its finding. It held that the parties in Wallace behaved as though they were bound by the LOI – the seller announced his retirement upon the sale of the business, and referred to the buyer as the new owner.[5] The Ontario Superior Court recently extended this reasoning in Seelster Farms et al. v. Her Majesty the Queen and OLG, noting that contractual language may not be necessary provided that hallmarks of contractual intention – an offer, an acceptance at its inception and consideration – are present both within the wording of the LOI and the behaviour of the parties.[6] In Seelster, a contractual relationship was formed, which led the court to consider the LOI as an enforceable agreement.

Drafting considerations

Parties drafting an LOI should do so with clarity and a sense of purpose – it is key to identify at the outset which terms are intended to be binding, and which are not. The following tips will be helpful if the intention is to draft a non-binding LOI:

  • Avoid any contractual language, such as “it is agreed”, “upon acceptance”, “this agreement” or “the parties shall/will”.
  • Clearly state the conditions under which parties intends to be bound, for example by stating that a binding intent will only be crystalized in a definitive agreement and the entering into of a definitive agreement is contingent on the Recipient’s satisfaction of its due diligence review, external factors and the Recipients sole discretion.
  • Include a “non-binding” provision that expressly covers which terms are and are not intended to be binding on the parties. For example, an LOI may state that, other than the confidentiality and exclusivity clauses, all other sections are not binding on the parties and any such provisions will only be binding when incorporated in an executed definitive agreement.
  • Consider dealing with any non-generic binding provisions in a separate agreement or exempting them from the LOI, such as an exclusivity letter agreement or confidentiality agreement for example.

Making sure to “practice what you preach”

The language of the LOI, however well-drafted, is not alone sufficient to prevent binding obligations from arising. In the aftermath of Wallace and Seelster Farms, the intention of the parties to enter a binding agreement is to be determined on the entirety of the evidence. Where the parties intend for the LOI to not be binding, they must act as such. Behaviour that implies that the deal is going to happen and that negotiations are a mere formality may influence the courts to read in contractual obligations between the parties of a non-binding LOI. Any inter-related agreements will also be considered in this determination, meaning other contractual relations between the parties must not differ from the intention stated in the LOI.[7]

Post-script: Extra caution in the Province of Québec

Parties contemplating an LOI governed by Québec law should be mindful that the Civil Code of Québec provides a statutory duty of good faith which requires the parties to conduct themselves in good faith both at the time the obligation arises and at the time it is performed (as opposed to only when the obligation is performed, which is the current law in Ontario, for example).[8] In its recent August 2020 decision in Beauregard v. Boulanger, the Quebec Superior Court reiterated that an LOI is an agreement akin to a preliminary contract, and thus imposes that the parties conduct themselves in good faith.[9] That said, the obligation to act in of good faith at the pre-contractual stage does not prevent either of the parties from putting an end to negotiations that have failed or that have been carried out in bad faith by the other party. While the court ultimately found that the defendants could withdraw from the LOI, the court in an obiter explained that a party who breaks off negotiation in breach of its duty to act in good faith could expose itself to the damages suffered by its counterparty between the signing of the LOI and the breakdown of the discussions (for example, damages could include the fees and expenses of advisors incurred in that period and travel expenses). The obligation of good faith in preliminary contractual relations is particular to the Civil Code of Quebec. It has yet to be determined whether the Supreme Court of Canada decision in Bhasin v. Hrynew, [10] which recognized as a general organizing principle of common law good faith in contractual performance, extends to preliminary contractual relations.

[1]Martel Building Ltd. v Canada, 2000 SCC 60 at para. 73.

[2]Wallace v. Allen, 2009 ONCA 36.

[3]Wallace v. Allen, 2009 ONCA 36, at para 27.

[4]Wallace v. Allen, 2009 ONCA 36, at paras 29-31.

[5]Wallace v. Allen, 2009 ONCA 36, at para 34.

[6]Seelster Farms et al. v. Her Majesty the Queen and OLG, 2020 ONSC 4013, at para 175-178.

[7]Seelster Farms et al. v. Her Majesty the Queen and OLG, 2020 ONSC 4013, at para 177.

[8] Civil Code of Québec, section 1375.

[9]Beauregard c. Boulanger, 2020 QCCS 2090.

[10]Bhasin v. Hrynew, 2014 SCC 71.

Authors

  1. Daryna Kutsyna
  2. Claire Gowdy
  3. Chrystelle Chevalier-Gagnon

Here is a link to the original article: CLICK HERE

B.C. Introduces Land Owner Transparency Registry to Record Indirect Ownership of Land

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The following article was written by Mark V. Lewis (Partner) & Sunjeet Grewal (Associate) of the law firm Bennett Jones, Vancouver; and reprinted with their permission. Please contact them directly for more information about LOTA & how it may apply to you.

On November 30, 2020, Bill 23 (2019), the Land Owner Transparency Act (LOTA) will come into force together with the Land Owner Transparency Regulation (LOTR) to create the Land Owner Transparency Registry, a first-of-its-kind registry in Canada intended to record the indirect ownership of land by certain individuals.

Background

Following various reports and allegations of illicit money being used to acquire British Columbia real property, the province initiated several measures in 2018 and 2019 to identify means by which it could either limit the use of such funds to acquire interests in land or track the identities of the individuals who were ultimately providing the funds for the purchase of such interests in land. While the Provincial government intends LOTA to create additional means for government authorities, tax authorities and law enforcement to combat fraud, money laundering and tax evasion, it is clear that LOTA will have far-reaching consequences—beyond reducing illegal and nefarious activities—on day-to-day real estate transactions and the ownership of interests in land in B.C.

In launching the Registry the government is creating a second database of land ownership records that will operate in parallel to, but separate from, the Land Title Office (LTO), which records registered ownership of real property interests. The Registry will record indirect ownership of interests in land (e.g., shareholdings in a corporation, partnership interests in a partnership and beneficial interests of trust beneficiaries) in an online database operated by the British Columbia Land Title and Survey Authority (LTSA). A land transfer filed in the LTO (among other filings) will require at least one and possibly two concurrent filings in the Registry. According to the LOTR, the search functionality of the Registry is intended to be made operational on April 30, 2021, giving the government a five-month cushion to resolve all outstanding practical and technological issues in activating the Registry.

The operative disclosure and reporting language in LOTA is largely borrowed from the Information Collection Regulation made under the Property Transfer Tax Act, RSBC 1996, c.378 (PTTA). The concepts of relevant corporations, relevant partnerships and relevant trusts, and the types of disclosure contemplated in LOTA are generally (but not completely) consistent with the PTTA. We will not revisit those concepts here.

LOTA Fundamentals

LOTA requires the disclosure of the names of certain individuals (interest holders) who have an indirect interest in privately-held real property in British Columbia as well as also their key personal and contact details. Contrary to many misleading publications, the Registry is not intended to identify real property “beneficial ownership” and it does not specifically focus on the “beneficial owners” of real property, as those terms are commonly known and used at law.

Instead, LOTA focusses on the individuals who ultimately have material control over specific interests in land, in some instances over multiple layers of ownership well beyond that of the actual beneficial owner at law. In some instances this may align with the identity of beneficial owners who are individuals. However, in the majority of commercial instances in which the beneficial owner is a non-individual person, the ultimate controlling owner(s), whose identities and interests must be disclosed under LOTA, will be one or more individuals higher up an organizational chart.

When a parcel of land (for which there is a title raised and registered in the LTO) changes hands in the normal course (via the filing of the Form A Freehold Transfer at the LTO), new parallel documentation must be filed in the Registry to satisfy the LOTA requirements. Where a parcel of land is transferred at the beneficial ownership level (e.g., on the transfer of shares of a nominee corporation) and there is a change of interest holders, then no LOTA filing is immediately required at the Registry but one would have to be made within two months of the transfer to identify the new interest holders associated with that parcel.

LOTA Reporting Requirements

Reporting requirements under LOTA are required in connection with any “interest in land”, which is currently defined as the following:

  • an estate in fee simple;
  • a life estate in land;
  • a right to occupy land under a lease that has a term of more than 10 years;
  • a right under an agreement for sale to occupy land or to require the transfer of an estate in fee simple; or
  • an estate, right or interest to be prescribed by regulation, which could eventually include interests such as mortgages, options to purchase and rights of first refusal.

Under LOTA, upon the registration of an interest in land at the LTO, all transferees (including individuals) must file a transparency declaration pursuant to s. 10 of LOTA (the Declaration). A transferee must disclose in its Declaration whether the transferee is a reporting body, being a relevant corporation, a trustee of a relevant trust or a partner of a relevant partnership that is required to file a transparency report under either sections 12(1), 15(1) or 15(4) of LOTA (the Report). If the transferee is not a reporting body, then no further filings at the time of transfer are required.

For the purposes of LOTA:

  • a relevant corporation means a corporation or limited liability company but does not include a corporation or limited liability company that is included in Schedule 1 of LOTA;
  • a relevant partnership means a general partnership, limited partnership, limited liability partnership, professional partnership or foreign partnership within the meaning of the B.C. Partnership Act, a prescribed partnership and any legal relationship created in another jurisdiction that is similar to any of the legal relationships described in this paragraph; and
  • a relevant trust means an express trust, including a bare trust, a prescribed trust and any legal relationship created in another jurisdiction that is similar to any of the legal relationships described in this paragraph.

If a transferee identifies itself as a reporting body in a Declaration, then the transferee must also file a Report, which must be filed concurrently with the Declaration. Without filing the Declaration and, if applicable, the Report, the LTO registrar is required to refuse the registration of the relevant interest in land in the LTO. Reporting bodies will be required to disclose detailed information within the Report including (but not limited to) the name, date of birth, address, social insurance number, tax residency, certain contact information and information regarding the interest in land indirectly owned by relevant interest holders. The information contained in a Declaration or a Report is available for inspection by an enforcement officer appointed by the minister under the Public Services Act, unless the individual is under 19, is incapacitated, or the individual applies to omit information as it is a health or safety risk, and that application is approved by the administrator appointed by the Chief Executive Officer of the LTSA as set out under Part 4 of LOTA.

A Report must identify who the ultimate interest holders are of the interest in land being transferred. Interest holders required to follow such disclosure obligations are those individuals who hold either (i) a “significant number of shares” in a corporation which equates to 10 percent of the shares in a relevant corporation or shares which carry 10 percent or more the voting rights, (ii) a beneficial interest in land, or (iii) an interest in land through a partnership.

It is important to note, it is only those individuals who fall within the definition of either beneficial owner, corporate interest holder or partnership interest holder, not all owners of interests in land, who will be required to disclose the required information. Pursuant to s. 21 of LOTA a reporting body is required to take reasonable steps to obtain and confirm the accuracy of the information reported. However, failure to comply with the requirements with respect to obtaining and confirming such information could result in significant penalties, as noted below.

The initial versions of the Reports to be filed at the Registry make clear that not only is certain personal information required to be included with respect to interest holders, but also that generic descriptions following the language of LOTA will be required as to how an individual is an interest holder, without providing specific details.

Accordingly, for purchasers and their advisors, it will soon be mandatory for the full extent of ownership structures to be disclosed by a purchaser to its lawyer prior to closing real property transactions so that a Declaration and, if required, a Report can be prepared for filing with the Registry at closing. It is important to note that all of this information will not need to be disclosed either to a vendor as part of the closing (absent specific contractual language requiring such disclosure) or in a Report, as only information regarding individuals who meet the LOTA definition of “interest holders” at the end of the structure must be submitted.

It should also be noted that s. 24 of LOTA requires that before filing a Report, a reporting body must take reasonable steps to give written notice of the filing of the Report to each interest holder and settlor who is identified in the Report. The Report itself requires confirmation that notice was given and, if notice was not given then, pursuant to s. 24(2)(b) of LOTA, a summary of the steps taken to give notice must be provided. This notice will be an additional transaction document that will need to be prepared and delivered.

In addition to the LTO filings required by a transferee who acquires an interest in land as contemplated by LOTA, in 20201 the government added s. 17.1 to LOTA requiring a corporation, trustee or partner that is a registered owner of an interest in land to give notice to the Registry if, after the corporation, trustee or partner has filed a Report, the corporation, trust or partnership ceases to be, respectively, a relevant corporation, relevant trust or relevant partnership. This notice must be filed within two months after the date on which the corporation, trust or partnership ceases to be, respectively, a relevant corporation, relevant trust or relevant partnership.

Indirect Control

The LOTR has extensive language to address indirect control exercised through a “chain of relevant intermediaries”. A relevant intermediary is defined to include any person that is one or more of the following and is controlled by another person: (1) a relevant corporation, (2) a relevant partnership, (3) an individual, relevant corporation or relevant partnership that is a trustee of a relevant trust, (4) an individual, relevant corporation or trustee of a relevant trust that is an agent, and (5) an individual, relevant corporation, relevant partnership or trustee of a relevant trust that is a personal or other legal representative.

The purpose of these provisions is to ensure that in examining the ownership structure, one does not stop at the bottom of a chain of relevant intermediaries or stop upon reaching an individual who is still subject to some prescribed element of control.

These new elements and nuances mean that a significant amount of due diligence and effort will be required on the part of purchaser’s counsel to work with clients to correctly identify the identity of the individuals who are the ultimate owners or controlling individuals of any registered owner of an interest in land, which ultimate owners are considered a relevant corporation, a relevant partnership or a trustee of a relevant trust. The B.C. government has gone to significant and detailed lengths in its attempt to capture various means by which direct and indirect ownership of interests in land may be controlled by related or unrelated third parties. Counsel will need to pay close attention to the requirements in LOTA and LOTR to ensure that correct disclosures are made in any required Declaration and Report.

Excluded Corporations and Trusts

While LOTAis broad in scope, the legislation does exclude from the definitions of relevant corporate and relevant trust entities that are identified, respectively, in Schedules 1 and 2 to LOTA. Schedule 1 contains exclusions (among others) from the definition of relevant corporation for a corporation or limited liability corporation that is:

  • a corporation that is a reporting issuer or reporting issuer equivalent with the meaning of the B.C. Business Corporations Act;
  • a corporation that is listed on a designated stock exchange within the meaning of section 248(1) of the federal Income Tax Act (ITA);
  • a strata corporation within the meaning of the B.C. Strata Property Act;
  • a savings institution, insurance company or trust company;
  • a pension fund society within the meaning of the B.C. Pension Fund Societies Act; or
  • a wholly owned subsidiary (as that term is defined in the B.C. Business Corporations Act) of a corporation to which any of the exclusions in Schedule 1 apply.

Similarly, Schedule 2 contains exclusions (among others) from the definition of relevant trust for any trust that is:

  • a real estate investment trust, mutual fund trust or SIFT trust within the respective meanings of the ITA;
  • property vested in a person licensed or appointed under the federal Bankruptcy and Insolvency Act;
  • spousal or common-law partner trust within the meaning of the ITA;
  • a charitable or testamentary trust; or
  • a trust the trustee of which is an administrator of an estate.

LOTA has provided for the flexibility to have additional exclusions added to Schedules 1 and 2 by regulation.

Important Timelines

The following circumstances will trigger the requirement to report:

  • for any transfers of land in the LTO, a Declaration and, if applicable, a Report must be filed at the time of filing an application to transfer an interest in land with the LTO;
  • for individuals who are currently holders of an interest in land (as of November 30, 2020), they have until November 30, 2021, to file a Declaration and, if applicable, a Report as to the current interest in land held as at November 30, 2020; and
  • if there is a change of interest holder that does not result in an LTO filing, then LOTA requires a reporting body to file a new Report within two months after the reporting body becomes aware, or reasonably ought to have become aware, that (a) a previous Report no longer accurately discloses the current interest holders, or (b) a determination of incapacity has been made in respect of an interest holder.

Implications for Leases

Section 21 of the LOTR adds clarity around the obligations to file Declarations and Reports in respect of registered leasehold interests as it exempts the filing obligations of any relevant corporation, trustee of a relevant trust or partner of a relevant partnership that hold a registered leasehold interest for which the remaining term of the lease (excluding renewal/extension terms) is 10 years or less.

Accordingly, upon either the filing of a lease at the LTO, or the application of s. 15(1) of LOTA with respect to existing registered leases (determined as at November 30, 2020), if the current remaining term of the registered lease is 10 years or less then neither a Declaration or Report needs to be filed2.

Implications for Individuals Holding Registered Interests

As noted above, another key provision in the LOTR is s. 19, which confirms that all “pre-existing” owners of real property in B.C. will have until November 30, 2021, to file a Report with respect to all interests in land recorded in the LTO so that its records are complete without having to wait for transfers to be filed. This applies to any interest in land to which s. 15(1) of LOTA applies.

As long as an individual is not a trustee of a relevant trust (which includes a bare trust) then LOTA will not apply and, in particular, s. 15(1) will not apply to require a Report to be filed on or before November 30, 2021. Importantly, there is no obligation for individuals holding a registered interest in land to file a Declaration pursuant to s. 10 of LOTA to identify whether or not they are a reporting body.

Distinctions Between Ownership Thresholds Applied Under LOTA and the B.C. Business Corporations Act

The threshold for ownership disclosure under LOTA is 10 percent of the shares or voting shares of a corporation, whereas the threshold under the B.C. Business Corporations Act in respect of the corporate transparency registry requirements is 25 percent (which is, in turn, consistent with the Canada Business Corporations Act).

With respect to partnerships, the LOTR adds clarity around the disclosure obligations that are not addressed in LOTA. Section 7 of the LOTR provides that, with respect to a relevant partnership, disclosure is required in respect of any partner who is not a limited partner and also for any limited partner of the relevant partnership who is (1) entitled to at least 25 percent of the profits of the partnership assets, (2) is entitled on wind up to at least 25 percent of the assets of the partnership, (3) has at least 25 percent of the votes in the partnership management, or (4) has the right to appoint or remove the majority of the partnership’s management.

Release of Disclosed Information

In line with the goal of creating transparency under LOTA, the public will be able to access some of the information filed in Reports by conducting a search of the Registry. This has raised obvious concerns as to security and privacy; however, more sensitive information included in required Report disclosures, such as social insurance numbers, tax details and dates of birth, will only be available to law enforcement agencies and government agencies such as Canada Revenue Agency.

As an added security measure, information disclosed in a Report will not be accessible to the public until at least 90 days after the Report has been filed with the Registry. The purpose of this delay is to provide individuals with an opportunity to request that some or all of the individual’s disclosed information be concealed from the public record if the health, safety or mental health of an individual is at risk. As an additional security measure, the LTSA is required to conceal information with respect to individuals under the age of 19 and those incapable of managing their financial affairs.

Only primary identification information, as defined under LOTA, which is included in a Report will be available for search by the public. For individuals this will include the name, citizenship information and city and province where the individual resides. In the case of corporate entities or partnerships, primary identification information will include name of entity, address, and information as to applicable jurisdiction(s) in which such entity is registered. A Report may be inspected by tax authorities, law enforcement and by regulators as such terms are defined under LOTA. In the case of inspections by such authorities, the entire Report may be reviewed for the purposes set out under LOTA.

As noted, the B.C. government currently intends for the search functionality of the Registry to be available as of April 30, 2021.

Penalties

A reporting body that fails to file a transparency declaration or provides false or misleading information in a Report may be subject to administrative penalties no more than the greater of (i) $50,000 for corporations or other entities or $25,000 for individuals; and (ii) 5 percent of the assessed value of the property to which the Declaration or Report relates. Audits of certain applications will be conducted by the regulator to determine whether penalties should be enforced.

Failure to file a Report or the provision of false information may constitute a violation under LOTA and LOTR, which violation could trigger a penalty of no more than the greater of (i) $25,000 to $50,000 for individuals or $50,000 to $100,000 for corporations or other entities; and (ii) 15 percent of the assessed valued of the property to which the Declaration or Report relates.

Taxation of Beneficial Interest Transfers

Many people have inferred that LOTA will soon allow the province of British Columbia to tax the transfer of beneficial interests in land, as those interests are known under the Income Tax Act. When Bill 23 was in committee, the Opposition specifically asked Finance Minister James whether LOTA would result in additional taxation of the owners of beneficial interests in land. The Minister quickly and unambiguously responded that it would not.

With the NDP now having been re-elected with a majority of seats in the B.C. Legislature, and Finance Minister James having retired from politics, that response may now be moot; however, it is worth noting, as mentioned above, that LOTA does not require the disclosure of “beneficial owners” as we have come to know them as distinct from the “legal” owners of real property under the federal Income Tax Act. The information to be recorded in the Registry will not necessarily include the beneficial ownership of real property (although it will in some instances). Accordingly, while the Registry does provide a framework that could with some modifications be used to track transfers of beneficial ownership, LOTA in its current form will not allow for that to happen.

Notes

  1. See Bill 13 – 2020, Miscellaneous Statutes Amendment Act, 2020.
  2. Section 21 of LOTR defines “remaining term”, in relation to a lease to exclude “any periods for which the lease may be extended or renewed”.

We Welcome CBRE in Vancouver BC as our newest client

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We are very proud to count the Vancouver BC office of CBRE as our latest training client. We are propelling the prosperity of their newer agents by offering a series of ‘Lunch and Learn’ micro-training events this month.

This training focuses on technical aspects of getting the business, commercial leasing processes and investment sales.

We really enjoy their enthusiasm and eagerness to become the best at what they do! We are definitely getting them off on the right foot.

We Welcome Royal LePage is Our Latest Training Client

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We are honoured to announce that Royal LePage, Canada’s largest real estate brokerage by number of agents, is our latest commercial real estate training client. In addition, Royal LePage agents will be offering their commercial tenant clients our unique tenant focused lease advisory services.

Look for additional details coming soon.

International Franchisors Helps Franchisees with a Unique Real Estate Service

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The Greenstead Consulting Group secured a contract to provide unique lease management services for three retail service businesses including franchisees of Anytime Fitness, and Waxing the City; and the corporate locations of Basecamp Fitness.

According to the Greenstead Consulting Group CEO, Peter D. Morris, this is a comprehensive lease advisory and management service that accessed by the system’s franchisees across the USA and Canada.

“Our Outsourced, In-house Real Estate ServicesTM provide independent business people with the same quality of service as one would find in a large real estate department of an international chain,” said Morris. “Clients, of all sizes, understand that managing their real estate is not a lease transaction every few years. It is a major part of their business that needs to be properly planned, implemented and monitored on a continual basis. To our clients, we are their in-house real estate department.”

Morris noted that a tenant’s lease obligation is typically one of the top three expenses a company incurs; yet most entrepreneurs don’t have real estate expertise, and that was the reason he created the service based on his three decades in the industry.

The unique service model Morris developed allows independent tenants and small chains to obtain a bundle of services on both a subscription and a la carte basis. For example, Greenstead Consulting Group will manage ongoing lease commitments such as exercising a renewal option for a small annual fee; while handling infrequent larger issues, such as a tenant relocation negotiation, lease assignments or estoppel verification, on an hourly basis as the need arises.

According to Morris real estate is a function that allows the businessperson to conduct their business, but he noted that real estate is the business of the tenant’s landlord. Morris fervently believes all tenants should proactively manage their leases in order to save money and reduce risk. He states that his service provides that management while allowing the entrepreneur to focus on their business.

“The Anytime Fitness and Waxing the City franchisors recognized that they could provide enhanced services to their franchisees, who are typically the tenant on the lease,” said Morris. As a result, the Greenstead Consulting Group will be a preferred provider of the lease advisory and management services.

For details go to CRELeasePros.com

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.