Since the tabling of the provincial budget on March 17, 2016, when there is a transfer of an immovable property in Québec and such transfer is not published in the land register, the purchaser must nevertheless report it to the relevant municipality and pay the applicable transfer duties. Failing this, the purchaser exposes itself to penalties representing 150% of the applicable transfer duties.
Previously, if the title was owned by a nominee, it was possible to forego the payment of the transfer duties by conducting an off-title transaction and, at the same time, assigning the shares in the nominee to the purchaser, all without obligation to disclose the transfer to the municipal authorities.
Since these changes, questions have been raised concerning the usefulness of a nominee in a real estate acquisition. Is it really still useful or is it a concept of the past? Why do some people continue to use nominees since the changes took place?
The answer is simple: nominees are still useful, but only in certain real estate transactions.
First, when we are dealing with a purchaser operating under a complex structure, such as a real estate investment fund (REIT), a group of investors, co-owners with third-party management or any other similar structures, it can be difficult and time-consuming to obtain a board of directors’ resolution for tasks or operations primarily related to title or management of the building, such as for example, leases that conform to the agreed parameters, easements for public services or declarations of co-ownership, etc. In such cases, more often than not, these are administrative tasks or tasks that follow predetermined instructions. The advantage of using a nominee then resides in the speed with which such tasks can be delegated to administrators of a nominee, who are more available than those who manage the investment fund.
A commercial property owner can also see the benefit from using a nominee to hold the title property. In such a case, the nominee will be responsible for signing the commercial leases on behalf of the lessor. This advantage is all the more important if the real owner holds other assets that it wants to try to protect. The usefulness of the nominee then lies more in an asset protection strategy. Such a strategy is, however, never flawless.
For the same reasons, a purchaser who is informed during due diligence that the building has been decontaminated, but that there may have been contamination migration to neighbours, may also wish to seek an asset-protection strategy by using a nominee to hold title to the property. However, given that nominees have frequently been used in real estate transactions, it is easier to identify a building held by a nominee, which further limits the advantage of using a nominee.
In short, the use of nominees will not soon disappear from the real estate transaction portrait, but it is certain that it is necessary to determine its usefulness by keeping in mind its advantages and disadvantages.
By Nicolas Beaulieu