Pursuant to several recent legislative amendments and enactments, Ontario corporations holding a legal or beneficial interest in real property in Ontario are now subject to more onerous record-keeping requirements. These legislative amendments and enactments are particularly relevant to lenders not only because non-compliance by their borrower clients can result in significant monetary fines, but because the new legislation provides a right in favour of the Crown, in limited circumstances, to delete or amend certain encumbrances (including mortgages) registered against properties held by a dissolved corporation.
Forfeited Corporate Property
The Forfeited Corporate Property Act, 2015 (the "FCPA") and the Escheats Act, 2015 came into force on Dec. 10, 2016; with their implementation also came a number of amendments to the Ontario Business Corporations Act ("OBCA") and the Corporations Act ("CA"). Consistent with the prior Escheats Act (which was repealed this month), the new legislation mandates that real property of corporations that are dissolved will be forfeited to the Crown immediately upon such dissolution (whether such dissolution occurs involuntarily or voluntarily, provided that for any voluntary dissolution, the property is not transferred, sold or distributed at the time of such dissolution).
While the previous provisions of the OBCA and CA provided corporate owners with a right to recover such forfeited real property from the Crown for a 20 year period following dissolution if the corporation was revived, the new legislation is not so generous. Although the 20 year revival right continues, corporations are no longer entitled to recover any forfeited property if the revival occurs more than 3 years following the dissolution (subject to some exceptions). Following expiration of the new 3 year time limitation, the Crown can use the forfeited property for its own purposes, dispose of it and, most importantly for secured parties, delete or amend certain encumbrances (including mortgages) registered against same, provided certain procedures are adhered to (discussed further below). It is important to note that the FCPA also extends the Crown's rights to any personal property left in, on or under any forfeited real property, which is another change from the previous legislation.
Pursuant to the FCPA, the Minister is required to provide at least 90 days advance notice to anyone who has a registered interest in the property (whether real or personal property) of his/her intention to cancel any encumbrances registered against forfeited corporate property. The notice must include the corporate name, the date the corporation was dissolved, information identifying the property, a statement indicating a date upon which all encumbrances referred to in the notice will be cancelled, among other matters more particularly set out in the FCPA. Any person who intends to bring a claim or enforce an interest in the forfeited corporate property is required to respond to the Minister in writing before the date specified in the notice. Although it is highly likely that a lender would be aware of their borrower corporate client's dissolution prior to the expiration of the 3 year period noted above, it would be prudent for lenders to ensure their up-to-date address for notice is reflected in any real and personal property registrations. Lenders may also wish to obtain a Certificate of Status for their corporate borrowers from the Ontario Ministry as part of their annual review process to ensure their borrowers have not been unknowingly dissolved.
Corporate Record Keeping of Real Property Ownership Interests
The OBCA and CA have also been amended to require a corporation to keep an updated register of the corporation's ownership interests in real property. The legislation does not specify that this only applies to registered interests and therefore, both legal/registered and beneficial interests will be caught by these requirements.
The new real property register must identify each property, the date the corporation acquired the property and, if applicable, the date the corporation disposed of it and be kept at the corporation's registered office. In addition, the corporation must keep with the register a copy of any deeds, transfers or similar documents that contain the municipal address, the registry or land titles division and property identifier number, legal description and any assessment roll number with respect to each property listed in the register.
Ontario corporations who hold a beneficial interest in real property pursuant to a co-tenancy or co-ownership agreement, or who appoint a nominee corporation to hold legal title to real property, will need to take notice of these new requirements and obtain a copy of the required supporting documents from the property manager or trustee corporation (even if the registered holder is not incorporated under the OBCA).
Corporations who fail to comply with these requirements may be subject to a fine of not more than $25,000. If a Corporation is found guilty, every director or officer who authorized, permitted or acquiesced in the offence is also liable to a fine of not more than $2,000 and/or imprisonment for a term of not more than 1 year.
Existing Ontario corporations will have a 2 year grace period and will not be required to maintain a register of real property owned by the corporation and the related supporting documents until Dec. 10, 2018. However for any Ontario corporations incorporated after Dec. 10, 2016, these obligations come into effect immediately.
Lenders may wish to have their corporate borrowers confirm compliance with these record keeping obligations as part of their annual review process.