If your clients own, lease, or otherwise deal with real property in Ontario, you should consider the effect of new reporting requirements that came into force on December 10, 2016. The recently enacted Forfeited Corporate Property Act, 2015 ("FCPA"), which amends the Business Corporations Act (Ontario) ("OBCA") and the Corporations Act (Ontario), requires corporations to maintain a register of their "ownership interests in land" in Ontario. The requirement is set out in an amendment to Section 140.1 of the OBCA as follows:

Register of interests in land in Ontario

140.1 (1) A corporation shall prepare and maintain at its registered office a register of its ownership interests in land in Ontario.

Same

(2) The register shall,

(a) identify each property; and

(b) show the date the corporation acquired the property and, if applicable, the date the corporation disposed of it.

Supporting documents

(3) The corporation shall cause to be kept with the register a copy of any deeds, transfers or similar documents that contain any of the following with respect to each property listed in the register:

1. The municipal address, if any.

2. The registry or land titles division and the property identifier number.

3. The legal description.

4. The assessment roll number, if any.

The Purpose of this Legislation is to Prevent and Manage Escheats

When a corporation that dissolves does not dispose of its property, that property is forfeited to and vests in the Crown¹. This process is referred to as an "escheat". Escheats can be problematic for the Crown, particularly if the land is environmentally contaminated or subject to tax and utility arrears. In order to manage the issues that tend to arise when corporate real property escheats, several statutes have been introduced and amended to place additional obligations on corporate owners. For example, the FCPA introduces personal liability for directors and officers of dissolved corporations where the province incurs costs associated with environmental remediation required to render forfeited property saleable².

When the FCPA amendments were introduced as part of the Budget Measures Act, 2015, the Minister of Finance stated that they would "improve the management of corporate land forfeited to the province"³. On the same day, the Ministry of Finance published a press release⁴ that identified the following five objectives of the FCPA:

• Mitigate risks to Ontario taxpayers that may arise when corporate property forfeits to and becomes Crown property when a company is dissolved;
• Reduce the number of corporate properties that forfeit to the Crown;
• Increase corporate accountability for costs associated with forfeited corporate property;
• Increase transparency and certainty in the management and disposition of forfeited corporate property; and
• Return forfeited property to productive use as quickly and efficiently as possible.

The Language Used to Create These Obligations is Ambiguous

Now that corporations are required to keep a register of their ownership interests in land, we need to understand what qualifies as an "ownership interest in land". The term is not defined in the FCPA or the OBCA. As many practitioners have already noted, an "ownership interest" could ostensibly include a leasehold interest, an easement, a mortgage interest, a beneficial interest, or a statutory right.

If we consider how courts have interpreted the word "ownership", we find a mixed bag of suggestions that don't clearly favour the inclusion or exclusion of leasehold interests. Judges have held that ownership involves "title to a thing"⁵, but have also noted that "a lessee for the term of years has been held to be an owner"⁶. Some legislation, including environmental legislation, explicitly expands the scope of the term "owner" so that it can include tenants and even subtenants⁷. Several courts have focused on "the right to possess and use the thing"⁸and "the right to deal with a thing to the exclusion of all other persons, or of all except one or more specified persons"⁹. On balance, we would suggest that the word "ownership" probably includes ownership by leasehold interest.

The second section of the requirement should also be noted. As part of its ownership register, each corporation must show the date that the property was "acquired". And if we look at how courts have interpreted the word "acquired", we find that most focus on beneficial ownership interest. One court looked to Black's Law Dictionary, which states that "to acquire…does not necessarily mean that title has passed"¹⁰. Others have found that "the word "acquired" connotes an element of beneficial interest or ownership"¹¹. In one case, the court held that "In considering when . . . property is acquired for the purposes of the Act, our courts have held that property is acquired when title has passed or when the purchaser has all the incidents of title, such as possession, use and risk"¹². It is very uncommon for the registered and beneficial interests of a lease to be split, particularly on the tenant's side of the lease. Accordingly, we won't venture into whether the legislation could apply to beneficial leasehold interests.

On the whole, judicial interpretation of these terms would suggest that leasehold interests are captured by the new legislation. However, it is important to examine how the interpretation of these words connects with the purpose of the new section. Remembering that the Crown's main objective is to reduce the incidence of corporate forfeiture, we must ask whether a leasehold interest could escheat to the Crown and cause the same issues as a fee simple escheat.

Escheated Leasehold Interests Aren't the Target of this Legislation

If a corporation owned land subject to a lease, and that land escheated to the Crown, it is fair to assume that (barring termination of the lease due to a change in control or anti-assignment clause), the Crown would become the owner of the lands and possibly the landlord pursuant to that lease. Accordingly, one might be tempted to construe the new legislation broadly and include leasehold interests. To do so would be a mistake – after all, it is important to remember that this situation could only come about following the initial escheat of the underlying fee simple interest. Even if the requirement is interpreted narrowly to include only fee simple interests, when followed correctly, the Crown will receive the benefit of the legislation in any case given the records kept by the registered fee simple owner.

The case to be made for tenants is even stronger. If a tenant corporation dissolves, it will inevitably default on its obligations under the lease. Once this default occurs, lease remedies as modified by the effects of insolvency or bankruptcy legislation take over. It would be absurd to suggest that the Crown take responsibility for the tenant's obligations pursuant to an ongoing lease, and therefore it makes no sense for this legislation to capture a tenant's ownership interests.

The Ministry Has Confirmed that this Legislation Does Not Apply to Leases and Other Interests

Given the apparent inconsistency between the plain meaning of the new legislation and its purpose, we contacted various branches of the Ontario government to ask about their intended enforcement practices. We received the following response from a manager at the Ministry of Infrastructure:

"The new requirement in the Business Corporations Act to keep a register applies to registered ownership interests in land, not all interests in land. This would include fee simple interests and co-ownership interests, but would not include leasehold interests, easements, licences, or mortgage interests. While the requirement is limited to registered ownership interests, it is a best practice for active corporations to maintain a record of all interests in land".

We note that the manager did not mention beneficial interests, but did use the term "registered interests" which excludes beneficial interests by implication (and we hope that was his intention!). We wonder, however, whether the Ministry's intention for the legislation to apply to registered interests in land was lost in translation – after all, the legislation requires corporations to maintain a register of ownership interests, not a record of registered ownership interests. We also enquired about whether a Notice of Lease registered on title would qualify as a "registered ownership interest", but we did not receive a response. Nevertheless, this position is consistent with the purpose of the legislation, and accordingly it is likely to reflect the government's attitude going forward.

Practical Advice for Real Estate and Leasing Lawyers

Corporations that are incorporated on or after December 10, 2016 must comply with the requirements in Section 140.1 immediately, and corporations incorporated before that date have until December 18, 2018 to comply. Lawyers should reach out to all corporate clients and notify them of the new corporate record keeping requirements as soon as possible. Many corporations are likely to require assistance with creating their registers. Lawyers may need to complete Teraview name searches as well as subsearches of adjacent and subject land, and may assist in obtaining roll numbers.

In certain instances, it may be best for some clients to maintain a list of all their registered ownership interests (rather than only fee simple interests). Lawyers can advise their clients that at present, it appears that this legislation is only intended to cover registered fee simple interests and those interests are most likely to be targeted for compliance. However, as this legislation has not been tested, lawyers should also explain that the legislation is ambiguous and could be judicially interpreted to include leasehold and other interests. Until and unless the provision is litigated or amended to clarify its meaning, we cannot be certain that leasehold interests are not captured.

Lawyers should also be mindful of the fact that this register must be kept at the corporation's registered address in Ontario. While many of our clients have traditionally preferred to use our law firm's address when first incorporating, we would now suggest that law firms avoid this practice so that they are not obligated to maintain the ownership register at their offices. During the transition period, lawyers should review all current and historical corporate client files to determine whether the law firm's address has been used as the corporation's registered address, and contact clients to update this information wherever possible.

^{1. Business Corporations Act (Ontario), R.S.O. 1990, c. B.16 at s. 244(1).↩}

^{2. Forfeited Corporate Property Act, 2015, SO 2015 C.38, Sched 7 at sections 30-31. For more information, click here.↩}

^{3. Click here for more information.↩}

^{4. Click here for more information.↩}

^{5. Beaulieu v. Reliance Insurance Co., 1971 CarswellOnt 795 at para 12.↩}

^{6. Morrison v. Urbaine Fire Insurance Co., [1944] 2 D.L.R. 402 at 412.↩}

^{7. See, for example, the Environmental Protection Act (Ontario), R.S.O. 1990, c. E. 19, at section 25.↩}

^{8. Merck Frosst Canada Inc. v. Canada (Minister of National Health & Welfare) (1994), 55 C.P.R. (3d) 502↩}

^{9. Delgamuukw v. British Columbia, [1993] 5 W.W.R. 97.↩}

^{10. Armstrong's Communication Ltd. v. Sure Safe Security Systems Inc., 2007 CarswellNS 493.↩}

^{11. McKeown, Re (1984), 1984 CarswellSask 173, (Sask. Q.B.) at para. 10 Wright J. See also Re McKeown (Horseman's Haven), [1984] 6 W.W.R. 274 (Sask. Q.B.).↩}

^{12. Morin v. R., 2006 CarswellNat 2938, at para 10.↩}