Does Your Alberta-related Deal Trigger Foreign Ownership of Land Regulations?

There is no doubt that the Agricultural and Recreational Land Ownership Act and Foreign Ownership of Land Regulations are a mouthful, but they may not always be top of mind when considering buying or leasing land in Alberta, and particularly when it comes to “non-real estate deals” involving a corporate change of control or share transfer. However, given the significant impact the Act and Regulations can have on your next transaction, understanding a bit about the history of this legislation, when it is triggered, and what you are required to do when it is, can help you avoid this common stumbling block in your commercial real estate and M&A deals.

Why Does Alberta have Foreign Ownership of Land Regulations?

In consideration of the cultural and economic value of Alberta’s prime farm land and recreational spaces, the Act and Regulations were created to control the amount of such land which could be purchased and held by non-Canadians persons and corporate entities. The Regulations accomplish this intent by restricting the ownership of private land located outside of a city, town, village, or summer village (which the Act defines as controlled land) by foreign-controlled corporation and non-Canadian individuals, subject to certain exceptions and exemptions.

What Kinds of Interests in Land Are Restricted?

The Regulations prohibit a foreign-controlled corporation or ineligible person from acquiring, directly or indirectly, an interest in controlled land which consists of more than two parcels, containing more than 20 acres in total. While this restriction applies to a broad range of interests, including beneficial and leasehold interests, a number of exceptions and exemptions to the rule exist. Notably, the Regulations permit a foreign-controlled corporation or ineligible person to acquire a leasehold interest in controlled land so long as the term of lease, including renewals and options, does not exceed 20 years and is registered with a Land Titles Office within 60 days of its being made. Additionally, the Regulations carve out a number of use-based exceptions allowing the acquisition of an interest in controlled land for the purpose of establishing an industrial, processing, or manufacturing facility, construction of a pipeline, processing plant, transmission line, and carrying out a residential development project, among others, subject to certain conditions.

When is a Corporation Considered to be Foreign-Controlled?

A corporation is considered foreign-controlled when it is incorporated outside of Canada or when its percentage of foreign ownership is 50 percent or greater. In the case of a public corporation whose shares are traded on a Canadian stock exchange, the corporation will be considered a foreign-controlled corporation if fewer than two-thirds of the corporation’s directors are Canadian citizens or permanent residents. It is important to note that this threshold is significantly higher than that imposed under the Alberta Business Corporations Act, which requires that only one-quarter of directors be Canadian citizen or permanent resident.

When Do I Need to Consider the Regulations? How Could they Affect My Deal?

Any time there is an acquisition of an interest in controlled land, whether or not the acquiring party is Canadian or foreign-controlled, the requirements of the Regulations and the steps necessary to comply with them need to be considered.

One aspect of the Regulations which frequently catches people off-guard is the requirement that additional disclosure documents be filed when submitting certain documents in respect of controlled lands for registration at a Land Titles Office, such as transfers and caveats. Again, because the Regulations are tied to the acquisition of an interest in controlled land, this requirement applies whether or not the acquiring party is Canadian or foreign-controlled.

For Canadian corporations registering documents at a Land Titles Office, the Regulations require the submission of a declaration in a prescribed form which lists the names and addresses of all shareholders holding five percent or more of the outstanding shares of the corporation, including the names and addresses of the ultimate beneficial shareholders in instances where shares are held in trust. Similarly, foreign-controlled corporations must submit a declaration in a prescribed form claiming an exemption pursuant to the Regulations. Failure to file the appropriate prescribed declaration, either evidencing that beneficial ownership of the interest is Canadian or claiming the acquisition falls within a prescribed exemption, will result in a rejection of the documents at Land Titles, prohibiting the acquiring the interest.

Corporate Change of Control

The Regulations also need to be considered in situations involving the transfer of shares of corporations owning or leasing property in Alberta, particularly in situations where the property is fundamental to the operation of the business, such as major manufacturing or office facilities. Under the Regulations, where a change in the ownership or beneficial ownership of the shares of a corporation owning controlled land occurs, the change is deemed to be an acquisition of the interest. This aspect of the Regulations is especially important where a change results in the corporation becoming foreign-controlled, because if the acquisition does not fall within a prescribed exemption, the now foreign-controlled corporation is required to divest itself of the interest in controlled land within three years. Additionally, if the Regulations are not complied with, the Crown can force a judicial sale of the interests, with the profits accruing to the Crown instead of the corporation.

The Last Word

With the Calgary Stampede just around the corner, we’ll part with a bit of cowboy wisdom: every trail, just like every deal, has a few puddles in it, but you can’t avoid what you don’t see coming.

On any deal involving controlled land, whether it’s a lease, asset purchase or share transfer, be sure to identify what will be required to comply with the Regulations and make a plan to get it done. While this might ultimately prove as simple as completing and filing the required declaration to avoid delaying your deal with a rejection at the Land Titles Office, don’t underestimate the potential impact of Alberta’s foreign ownership of land legislation. Depending on the circumstances, the hurdles created by the Regulations can prove to be costly, time-consuming, and can even kill a deal, so don’t bet the farm until you’ve done your due diligence.

 

Topics:  Canada, Commercial Real Estate Contracts, Corporate Sales Transactions, Foreign Investment, Stock Sale Agreements

Published In: Agriculture Updates, General Business Updates, International Trade Updates, Mergers & Acquisitions Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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