Transferring ownership or title to land from one person to another can be accomplished by a number of different methods, for example, registration of a transfer of land or deed of sale at a Land Registry Office, or by operation of law. A transfer or deed, in accordance with an agreement of purchase and sale entered into between a vendor and a purchaser, is by far the most common method of conveying ownership in land. Such agreements must be in writing to be enforceable, and should clearly set out the rights and responsibilities of those involved.

Registered interests in land

Two different systems of registration for conveyances, mortgages and other rights and interests affecting land exist in the common law provinces: the Registry Act system and the Land Titles system. The Registry Act was established in Upper Canada (now the Province of Ontario) in 1795, prior to Canada’s confederation. Under that system, title to a specific piece of realty must be examined in the registry office where the property is located. To establish sufficient chain of title requires a review of instruments affecting title for
at least 40 years.

The Land Titles system is much simpler than the Registry Act system. It is predicated upon the issuance of a certified statement of title that reveals the registered owner(s) of the land and all encumbrances to which title is subject (subject to certain statutory exemptions).

British Columbia, Alberta and Saskatchewan adhere exclusively to the Land Titles system, while Nova Scotia, Prince Edward Island and Newfoundland continue to adhere to the Registry Act system. Ontario, Manitoba and New Brunswick maintain both systems in varying degrees, depending on the location of the land in question. In both systems, mortgages and other land charges are registered to establish the lender’s priority to the real property security. Lenders will typically require a legal opinion as to the borrower’s title to the land, and the position of the lender’s mortgage against others claiming a registered interest in the land. If advances are to be made periodically under the mortgage security, the lender will generally require an update as to the status of title by way of a subsearch or updated title search, before making the advance. If the lender advances knowing of a prior registration against title or knowing of a subsequently registered builder’s lien, the lender’s priority against the prior registrant or lien claimant with respect to that advance may be lost.

In Quebec, the system of registration is governed by the Civil Code of Québec and is similar to the Registry Act system. All documents have, in principal, been computerized and are now available online. In Quebec, purchasers and lenders rely upon title searches in the land registry office going back sometimes over more than 100 years. Hypothecs (mortgages) must be registered as in common law provinces.

Due to Canada’s constitutional framework, real property security is primarily a matter of provincial concern. Accordingly, real property security is largely governed by the laws of the province where the real property is situated. With the exception of Quebec, the various land registration systems in place throughout Canada and the types of real property security available to creditors are largely uniform. It is possible then to view the issue of real property security in Canada by looking at the common law provinces together.

Mortgage

The most common form of real property security in the common law provinces is the mortgage (or charge). In this context, borrowers grant a mortgage of their real property and related assets to lenders as security for indebtedness, liabilities and/or other obligations. There are two general types of mortgages: conventional mortgages, which generally evidence the debt secured and include a repayment schedule; and collateral mortgages, which secure a debt which is typically evidenced elsewhere (for example, by a covenant to pay in a credit agreement), and may also secure other liabilities and obligations (such as guarantees). Should a mortgagor (borrower) fail to meet its obligations secured by a mortgage, the mortgagee (lender) has a number of remedial measures at its disposal. The available list of remedies include both self-help remedies (such as taking possession or selling the property by power of sale procedures (which are not available in Alberta)) and court proceedings (such as obtaining title to property by initiating a foreclosure action, or suing the mortgagor(s) and any guarantor(s) on the covenant for payment). In British Columbia, the availability of self-help remedies on default has been severely limited by court decisions, to the extent that virtually all realizations proceedings under land mortgages now proceed by way of a court-sanctioned foreclosure process. In Quebec, the usual security given on immovable property is the hypothec. The hypothecary creditor has a number of remedies at its disposal should the borrower default, including taking the property in payment of the debt (in which case the debt is deemed to be repaid), bringing the property to judicial sale or selling it privately, all of which would require court proceedings.

Lease

A lease of land results in the transfer of occupation rights in the land from a landlord (lessor) to a tenant (lessee) for a specified term. In the common law provinces and Quebec, notice of a lease (often in the form of a short form version of the lease, or a summary of its terms) may be registered on title. Under the common law, a tenant’s interest in leased lands is freely alienable (and may be mortgaged), unless a term in the lease provides otherwise. Commercial leases generally limit tenants’ powers of alienation without the express written consent of the landlord. Mortgages of leasehold interest are an attractive form of security to creditors where the lease has particular value in itself or is of inherent importance to the operation of the borrower’s business. The landlord and the mortgagee of the tenant’s interest will typically enter into a non-disturbance agreement to give the mortgagee certain rights in respect of the lease, if the tenant should default under it. In Quebec as well, the tenant’s rights in immovable property may be hypothecated, unless the lease says otherwise, however, the tenants’ interest in the lease and premises are contractual rights, as a lease in Quebec does not create an interest in real property.

Debenture

In a security context, debentures are frequently used to provide combined security over real and personal property of corporate borrowers. They are also useful in taking security over assets located in several provinces. Where several lenders are involved, debentures are frequently issued for the benefit of each lender pursuant to a trust deed. Debentures typically provide security through charges and security interests over all present and future property, and assets of the borrower and its undertaking or business. Security over existing real property is generally by way of a fixed charge, similar to a mortgage and providing similar remedies to the lender.

A land transfer tax or registration fee is payable on any registered conveyance of land in all of the provinces in Canada. The rate of taxation varies in each province and is based on the value of the consideration, except in Alberta, Saskatchewan and Manitoba, where the fee is based on the value of the land and fixtures at the time of the conveyance, and in Quebec, where the basis of imposition for transfer duties is the higher of the consideration, and the market value (deemed the municipal assessment value) at the time of transfer. Similarly, the Property Transfer Tax Branch in British Columbia and the Ontario Ministry of Revenue will routinely re-assess the tax payable based on the market value of the property on the date of transfer, where there is a significant discrepancy between the value of the consideration paid and the latest assessed value of the property.

Ontario is the most aggressive province in taxing transfers of land. Land Transfer Tax in Ontario has, since 1989, been payable on any transfer of land, whether registered or unregistered, and also on certain other transactions, including long term leases. An additional municipal land transfer tax is applied to real property transfers in the city of Toronto. In Alberta, registration fees rather than a tax are payable. Significant fees are only payable with respect to transfers, the creation of leasehold titles, and mortgages and encumbrances. In British Columbia, the tax is triggered by, among other things, registration of a transfer of an estate in fee simple, a life estate or a right to occupy land under either an agreement of purchase and sale, a lease, or a right to require a transfer of land under an agreement of purchase and sale. In the cases of British Columbia leases, there may be an exemption for registration of a lease with a term of 30 years of less. (Refer also to the section “Commodity Tax Considerations – Provincial Land Transfer Tax”.) Some provinces have implemented a higher rate of land transfer tax for non-residents.