- by Iven Tse
Presentation to CREPA October 12, 2018
First of all, thank you guest of all for coming to attend this seminar hosted by CREPA, and Secondly, thank you to the Executives and volunteers of CREPA who have spent countless hours to put together this event at such lovely location.
I was asked by CREPA to see if I can give a presentation about Do’s and Don’t for Realtors who are dealing with Assignments. As I was planning my presentation, it occurred to me that many of the “Do’s and Don’ts” have been becoming parts of the law or being regulated like never before already and have now been added to your Professional Standards Manual. If in doubt, follow the Manual and the Forms provided by RECBC. If you are still in doubt, the best persons to go for advice when it comes to the Do’s and Don’ts is right here in this room. You know who these people are? You brokerage’s managing brokers. How many here in this room are managing brokers? Can I have a show of hands? They are constantly being trained and educating themselves on how to help their agents understand their duties and obligations.
What I would like to talk about, is a topic that has been played out in the media a lot these days, causes a lot of problems when deals go sour, and which occurs in both regular purchase and sales of real estate as well as in assignments. That is, who really owns the land that that we are selling and buying, who really is the assignor, and who really is the buyer or assignee?
This question directly relates to your obligations as a realtor in an assignment situation to correctly identify who are the assignors, who are the assignees, and whether they have the authority to assign or to receive.
Those question about who really is the owner, or the buyer occurs in many ways but one is when there are corporate parties involved. The other is when the owner on title, or purchaser, assignor or the assignee, is not the real owner or even the real purchaser or assignee – in other words the person with a legal interest may not be the one with the beneficial interest.
I will have an email version of my presentation with links, to various laws, regulations and white papers, so if anyone would like to have it, please type out your email on my lap top that I will leave open at the front or me at firstname.lastname@example.org
First, allow me to introduce myself.
I have been practicing real estate for over twenty years, both commercial and residential. I addition to real estate, I practice corporate and commercial law, and Wills and Estates as well. I got my start in real estate during the HK transition to rule under China, back in 1997 when many of my clients came from Hong Kong and invested in real estate as their home and investments.
Many of them hired me to incorporated their companies here in Canada to do business, and as they are getting older they have started planning for retirement and getting me to help with settling their estates.
In addition, I also represent clients in real estate litigation, mainly in relation to latent and patent defects, civil forfeiture, builder’s liens, and trespassing claims.
You may have turned on to AM Radio CHMB 1320 to the program “The Legal Hotline” hosted by your own Jeffery Chiu, each Saturday from 4-5 pm where I am a regular guest speaker once a month on real estate, business, and wills and estates issues.
In terms of assignments of purchase contracts, these have always been around, but since 2016 when the Foreign Buyers Tax came about I have been dealing with more and more assignments from overseas buyers who want out of their deals. For those who cannot, I also represent a number of foreign buyer clients and helping them with their participation in an Class Action suit against the Government.
The first place to start is your very own Practice Standards Manual. Can anyone recite the six basic requirements for licensee when dealing with Assignments?
Your Professional Standards Manual mentions this is in relation
1. To ensure the assignor has the right to assign and the assignee has the right to receive;
- for this, you should make inquiries about a developer’s requirements to approve an assignment, including fees, (Reliance Property charged 25% of the lift price), disclosure of personal information including citizenship and residency, or whether the developer is not even interested in allowing an assignment at all.
2. That a proper assignment has been drafted and executed (BCREA has two forms) -
3. That the Assignor is aware of their obligations to provide the seller with clear notice of the assignment (unless the Assignment Option Clause allowing the assignment without notice is used.
4. The identities of the parties are clear and verified
5, the assignor’s and the assignee’s rights to the initial deposit under the original contract, if any, are dealt with; and
6. in the event that an assignor or assignee is a corporate party, that the individual signing on behalf of the corporate entity has the authority to bind the corporation (this may involve conducting a company search and obtaining a copy of the corporate resolution allowing that individual to execute the assignment on the company’s behalf).
When it comes to ascertaining identity and authority, I know that you know, many of the right questions. What are the kinds of things would you ask and what documents would you look for?
Notice of Articles of a Corporation
That is a good selection of identity documents.
However, if you were given a Canadian Passport, do you think you can tell if someone has dual nationality?
If you were given a Marriage Certificate, do you think you can tell of a couple is actually separated?
The point is, you may have to dig more to know about the assignor or the potential assignee, in terms of who really is in charge, who can make the decisions, and if something goes wrong, who can be held accountable for the problems that occur. The more you know, the better it is for you to make the judgement calls needed to represent your clients the best that you can.
Towards this goal of knowing more, two words come to mind: Transparency and Accountability.
Q What do you think these words mean when it comes to assignments?
Transparency is about a full disclosure of who is buying, selling, or assigning or transferring. Accountability is about ensuring that correct and adequate payment, whether it be GST, or Property Transfer Taxes or assignment profits to the seller, are collected and paid to the right persons and if they are not paid there would be ways to find, and then make the responsible party to pay.
Corporate Ownership and Control
Getting both Transparency and Accountability can be tough with corporate clients. How do you identify if the company has the authority to sign the contract, or let alone to assign, or receive, an assignment?
Q I would like to see a show of hands. How many of you have the experience of dealing with corporate clients who are either purchasers, assignors ,or assignees?
Q For those of you have corporate clients, may I ask how you all identify who the authorized signatory who can sign on behalf of the company?
- do you look at the Notice of Articles on the Corporate Registry?
- do you look inside the corporate minute book to review
the Register of Directors?
- do you look for resolutions signed authorizing one person or more to sign on behalf of the Company?
- Do you look for the shareholder resolutions appointing the directors?
- Do you look for the consents of the directors?
- Does the corporate client even have a corporate minute book?
Q How many of you who have had dealings with corporate clients where it is unclear about who the shareholders are, and who really owns the company and if they are actually owners, just how much of the company is owned?
Quite often, and in the past, it may have been enough to just accept the names of the people who are registered as directors for a company as having signing authority.
Increasingly, we need to educate ourselves that what you see, is not really what you get, because the new PTT forms, and rules regarding transparency that I will refer to you later , all want to know who actually owns the company. The incoming laws requires parties to know it and to make efforts to find out.
For you, as realtors, it is important for you to know who you are dealing with. This is part of the 4th and the 6th minimum requirements listed by the Real Estate Council of BC’s Professional Standards Manual under “Trading Services.”
In relation to minimum requirement item no. 6, If you have a corporate client as an assignor or assignee, then how to you verify signing authority? How do you verify the true ownership?
There are many ways. What are some ways?
Currently, if you are to search the corporate records of a company online, how many here think you can determine who owns the company?
To start with, you need to access the full corporate records of the company, not just the information at filed at the corporate registry.
In actuality, you will not find information about the ownership of the Company on the corporate registry. You would be able to get the share structure but not who owns the particular shares.
You should look at the Director Resolutions which are formal minutes of director meetings where a decision is made to appoint someone as having authority to sign for the company or if any one director can bind the company.
Then again, if the resolutions are signed by three out of four directors, how would you know if it meets the necessary quorum for a decision to be made?
Further Directors may be fired at any point in time by the Shareholders. Does anyone know how many of the voting shares of a company is needed to appoint and to fire, Directors? 66.67%
You have to look at a document called the Central Securities Register, and see what classes of shares have been issued, and what voting rights, if any, that the various class holders have,
Then you may need the see the names of the directors that have been appointed and see if it matches the Register of Directors and the names of directors that are listed on the corporate registry.
Then again, you may see a list of Officers for the Company that are neither the Directors, not the shareholders, and who hold positions by nomination of the Directors.
You may also have to see if you can find a shareholder agreements and stamps on share certificates that may indicate that shareholders are subject to an agreement which may or may not be filed with the corporate minute book.
If one of the shareholders itself is a corporation you need to look further into the corporate minute book of that corporation as well.
In many cases, the company can be incorporated by the clients themselves. In that case often they do not document anything, and if there is a signature, there may be lacking the independent verification of identity of that person that would be provided if the client had hired a lawyer to incorporate the company, as lawyers acting for the company have an independent obligation to verify the identity of corporate shareholders and directors.
For added certainty, if there is more than one company who is the client, such where one is a trustee and you may want to look into the tax records of the owners to see who is reporting the income, or losses, of the company. The company that reports the income or the losses, Is usually the owning company.
Another way to unravel the corporate onion maybe to verify the source of the funds and whether they are from the shareholders or a non registered party, or from the operation of the business.
With so many layers, it is no wonder there has been a movement now to provide more transparency to the public, and to realtors about corporate owners and purchasers.
Beneficial v Legal Ownership
Another problem that can be encountered in identifying who is the owner or who is in control, is the distinction between legal v beneficial ownership.
Q How many of you know the difference between beneficial and legal ownership? Can someone explain it?
It is the difference between who owns the property or interest in a contract on paper, and who really owns it based on other reasons such as their contributions to the property.
In many of these situations there are no agreements signed, just an understanding.
In many cases, it is one person or group of people who fronts the money on the understanding that the others who are registered on the corporate documents, will not sell or mortgage or refinance or assign without their consent.
There is often no power of attorney.
There is often no written agreement.
This makes it extremely difficult in terms of transparency – meaning “who really is the owner” and also difficult in terms of accountability – meaning “who will take responsibility” if something goes wrong.
When, and if things go sideways, it is a complete mess to sort out who really owns what
If, case that beneficial and legal ownership has been verified, it is therefore vitally important that both the legal title, and the beneficial title are assigned. The forms prepared by REBBC is good for legal title, but the beneficial title transfers must similarly be dealt with and which should the identification of the beneficial owners and obtaining their signatures as well.
It is also increasingly common to have a group of people presenting an offer to purchase an Assignment as a joint investment. They may or may not have an agreement defining how they will run their partnership. Instead, it is usually just an agreement about how they will share the profits and expenses. One party may be the one that signs the offer, but they do not have all of the monies needed to complete, so they join forces with another party, maybe another company and they agree to split the profits when they later sell. The problem is that that often, they will not have the clauses that are needed in order to sort out what happens when one of the parties disagrees with one another, or what happens when the funding does not come through.
Recently, two court cases that have appeared in the media, provides a good example of the problems that may happen when legal and beneficial ownership is mixed up, and assignments are made without transparency and accountability. You may have seen this or heard about it.
I will show one here: [ SHOW SLIDE
It is entitled “TWO FAMILIES FEUD OVER WEST SIDE REAL ESTATE”.
In this case, two families were disputing over who really owns several west wide properties, based on various financial contributions made. The judge made this comment
"The two families thought it best to not document the basis for their dealings with each other," Griffin wrote. "The two families also thought it best to structure the transactions in ways that disguised true ownership, just as they often did when buying properties in China."
Another case involves two corporations fighting over one property that was being sold to pay off a mortgage debt. The Judge found that one company which allegedly had a right to purchase that was not registered and where one of the signatory’s signatures were forged, while the other company had a purchase contract that was assigned several times to an eventual numbered company that was really not the intended final purchaser.
The Judges in both cases had to make credibility assessments in the absence of conflicting evidence, and called the latter a “corporate shell game”. I have attached the media references in my presentation notes, which I can forward to anyone who wants. I also have a copy of them in my package.
There is some relieve however, because of impending laws regarding the collection and recording of information about who holds a significant interest in a company and who in turn holds a beneficial interest in land. As these laws get implemented, all of our work in determining who really owns may be a lot easier, but until that time, it is still a very murky puzzle that still requires a lot of digging.
The trend, as I see it, with all the new laws coming out almost daily affecting your work, is towards greater transparency and accountability. I will just list several that has already been implemented:
- Recently, on September 17, 2018 here were recent changes to the Property Transfer Tax Form that required the collection of information about whether a transfer of property involves a partnership or trustees.
- This form comes as part of a PTT regulation, called the “Information Collection Regulation” that legally entitles the PTT Office to collect information about anyone holding who may have a significant interest in a property, being defined as a 25% legal or beneficial interest in a property, and requiring inquiries into the nature of ownership of the property and a demonstration of what steps have been taken to find that out.
- You may have already also heard about proposed new rules for assignments placed on developers, under Bill 25 Real Estate Development Marketing Amendment Act, 2018|that will force developers to keep greater tabs and records of parties to any assignments and will fine them for collecting misleading or false information.
- What you may know as well is another proposed new law called the “Land Owner Transparency Act” that may soon be implemented.
- Q Can I see a show of hands as to many of you have heard about this new proposed law, and what it means?
- It will require the collection of information abut people who have a significant ownership interest in a property, legal or beneficial currently defined as 25% or more.
- Moreover, it will not just be the PTT office requiring this at the time of purchase but a registry for all properties and managed by the lTSA and which will be shared with other provincial and federal government departments such as the CRA and the GST department.
These last two laws have yet to be implemented, but I think it will have the effect of making it more clear to anyone and not just realtors, who the real owners are, so we can actually identify them and make them accountable.
Before we get there, though when dealing with corporate ownership and when ownership is murky, we must never assume that the information you are receiving from a client, is taken at face value. You have to dig further, ask for more information, and get corroborating documents, and once that is done, you have to get the right parties to at least sign and acknowledge the information they are giving is true and accurate and better yet, to indemnify others who are affected by false or misleading information.