Property development is a broad practice area that includes real estate financing and development, which covers all aspects of real property transactions, and municipal law, which encompasses commercial, retail, and residential planning and land use work. Canada’s provincial governments have the main responsibility for property development law in Canada. Generally, this law finds its origins in the common law except for Québec, where it is governed by the Civil Code of Québec. Although the Canadian Charter of Rights and Freedoms does not provide constitutional protection for property rights, governments must compensate for any expropriation. Fee simple, leasehold interests, condominium ownership, and strata ownership are all common in Canada, and land in all provinces is subject to public land titles registration.
The agreement of purchase and sale is the basic real estate document for property transfers. Normally, it contains the business terms necessary for the transaction, including a description, the purchase price, the deposit, the closing date, and assorted unique provisions. Conditions for the benefit of all or some of the parties can also populate these agreements, as can representations and warranties.
Due diligence is the purchaser’s responsibility. It includes title and zoning searches, lease reviews, and surveys. Engineering reviews are also common. Title insurance is available and a regular feature of real estate transactions in Canada.
Leasing comes in various forms, including long-term ground leases, which may be transferred in the same manner as property held in fee simple. Agreements to lease are the primary documents in commercial lease transactions. These agreements are binding and contain the normal business terms including a description of the space, term, rent, and inducements. Rent is typically paid on a net/net basis. Retail leases frequently relate rent to sales volume.
Developers dealing with residential leases must beware of provincial legislation that does not allow for contractual opting-out. Some provinces also have rent control regimes.
Banks, credit unions, trust companies, pension funds, and insurers all provide real estate financing in Canada, which can be based on foreign currencies. Foreign lenders may be required to pay withholding or other taxes on the interest they receive.
Interest rates in Canada can be fixed or variable. Variable rates are based on the prime rate set by various lending institutions, which are in turn dependent on a rate announced by the Bank of Canada from time to time. Lenders usually charge commitment and processing fees, and borrowers are generally responsible for the lender’s legal fees.
Security may be primary or collateral. Forms of primary security include debentures, mortgages, charges, and trust deeds. Forms of collateral security include lease and rent assignments, general security agreements, and personal guarantees.
Prospective developers should be aware that Canada has a host of environmental laws on both the federal and provincial level. Many attribute liability for environmental damage to landowners and polluters. Property owners may also have responsibilities in relation to the discharge of contaminants and hazardous material from property they own. Subsequent owners may inherit liability for improper waste management. It follows that purchasers should conduct environmental risk assessments of the subject properties, and indeed, lenders may require them to do so. Such assessments may include environmental audits involving scientific testing and technical analysis.
Canada’s provinces also regulate property development, much of it at the municipal level through official plans and zoning bylaws governing land use and density. Development charges are increasingly common. Other forms of regulation include preservation of existing structures, building codes, and building permits.
Real estate brokers, mortgage brokers, lenders, and administrators are subject to various forms of regulation and licensing through provincial laws.
Toronto Implements Development Permit System
In a bid to streamline the development process, Toronto City Council implemented a development permit system (DPS) as an alternative to zoning. Provincial legislation enacted in 1996 allows municipalities to use DPS as a means of implementing Official Plan policies through the prescription of development standards and criteria for an area in keeping with localized desires and expectations.
DPSs are implemented by way of bylaws that deal with standards such as development heights, shadow impacts, use of materials, and community benefits. Once the bylaw is passed, all bylaws passed for that area, including minor variances associated with the bylaw, are automatically repealed. Also, DPS bylaws are not subject to site-specific zoning amendments or minor variances, although landowners can apply to vary the designated zoning for an area.
Another advantage that some see in the DPS process is that the appeal process is limited. Third parties cannot appeal the issuance of a development permit to the OMB, and only the applicant can appeal a refusal or the condition attached to a permit. Once a DPS is in place, however, it will be more difficult for developers to depart from the bylaw’s standards.
As it turns out, the cottage community of Lake of Bays in Northern Ontario has tried a DPS system, as have other smaller areas in Ontario. The reviews are mixed, although the issue seems to be with implementation rather than the concept.