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A Brief Lesson in Real Estate Corporate Ownership

April 26, 2019

A corporation can validly hold an interest in property when it is in existence. A company can be dissolved by a resolution of its shareholders or by an order of the Minister of Finance for reasons such as failure to pay taxes under various acts, file the annual returns or comply with the license regulations under the Alcohol, Cannabis and Gaming Regulation and Public Protection Act, 1996. When a corporation is dissolved, any real property that it owns is forfeited to the Crown. The Business Corporations Act (the “Act”) provides that a corporation which is dissolved by an order of the Minister may be revived (ss. 241(5) and (7)) and the property will be reinstated back to the corporation without a break in the chain of ownership, unless it was properly transferred to a third party during the period of dissolution. Forfeiture to the Crown will not affect the rights of a lender holding a mortgage on the property. In cases of forfeiture, the lender will issue a notice of sale to the Public Guardian and Trustee. Following the sale of the property and the payout of all mortgages, any excess funds will be paid to the Crown.  

 

When receiving an agreement of purchase and sale where the vendor is a corporation, the real estate lawyer must verify that all companies appearing as owners in the chain of title were in existence and capable of holding land throughout the period of ownership. If a corporation is dissolved prior to transferring the property, the transfer will be void and the property will belong to the Crown, subject to rare exceptions.  

 

For Ontario corporations, as a general rule the corporate search should extend 20 years prior to closing or the time the land was converted from the Registry system to Land Titles Conversion Qualified or Absolute Title Plus. For extra-provincial corporations, the searches need to be done back to the Crown patent.

 

Occasionally, the buyer in an agreement for the purchase of real property is listed as a “for a company to be incorporated”. The Act provides that the person who signed the contract is personally liable until the corporation is incorporated and the agreement is adopted by the corporation, either explicitly or implicitly.

 

A foreign corporation without a license under the Act to carry business in Ontario may still validly hold and transfer the property. However, without a licence, the solicitor will be unable to confirm whether the corporation is in good standing or in compliance with all laws and regulations.

 

If a corporation changed its name during the period of ownership of the property, the lawyer will require a certified copy of the articles of amendment changing the corporate name. The seller’s solicitor, will, prior to the transfer taking place, have to register on title an Application to Change Name, amending the name of the owner with a copy of the articles of amendment.

 

The actions of persons acting on behalf of a corporation in a purchase and sale agreement must be authorized by a resolution passed at a meeting of the directors. The purchaser’s solicitor does not need to see the resolution unless the corporation is selling substantially the whole of its undertaking. The indoor management rule protects third parties dealing with companies where the directors, officers and agents of the corporation are acting within their usual duties in the normal course of business of the corporation. The corporation will be bound by the agreement.

 

Where a corporation is borrowing money from a financial institution or a private lender, the lender’s solicitor will require a certified copy of the articles of incorporation, an officer’s certificate that the corporation’s by-laws do not restrict the directors’ borrowing powers, a copy of the borrowing by-laws, if any, and a certified copy of the director’s resolution authorizing the mortgage and empowering the officers to sign the mortgage documents. It is recommended that every corporation, even a small holding company, enacts borrowing by-laws and keeps good records of its shareholders, directors and officers as they are from time to time. 

 

Consequently, where a real estate transaction, whether it is a purchase, sale or mortgage, requires additional due diligence on behalf of your real estate solicitor. Failure to do so may result in the transaction being void.

 

 

If you require assistance with drafting of by-laws, shareholders agreements and other corporate records and documents, feel free to contact our office for a free lawyer's review. 

 

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