In some cases, clients may choose to use a corporate entity for a real estate transaction, for reasons that include tax planning purposes, minimizing liability, or to coordinate and facilitate investment by others. Agents dealing with these types of clients need to be on alert for issues that include the following.
Confirm and be clear on who your client is
Corporations can only act through individual people. Agents should take steps to check that they are receiving and following instructions only from the individual(s) authorized to give those instructions on behalf of the corporation. Don’t just take that individual’s word for it – ask for written authorization (e.g., a director’s resolution) that confirms the name of the person authorized to enter into the real estate transaction on behalf of the corporation.
Agents may wish to get their own legal advice about the appropriate person to provide them instructions on behalf of a corporate client, especially if there are multiple directors with apparent authority, or if there are complicated or potentially confusing ownership structures with multiple corporations that may be trustees for each other, or partial owners of each other’s shares.
Agents should also check that the corporation they’re dealing with is in good standing with BC Registry Services, or the equivalent in the jurisdiction in which the corporation was formed. Even if a title search still shows it as the owner, a BC corporation that has been struck from the Registry may no longer be the legal owner of a property by operation of the Escheat Act.[1]
Share vs. asset sales – know the differences and which is appropriate for your situation
Some agents are involved in the purchase and sale of businesses. As in any other transaction, agents must act with reasonable care and skill. This includes knowing the bounds of one’s own expertise and working cooperatively with other professionals who can assist the client with questions outside the agent’s expertise.
When a corporation lists a property for sale, or when a business is being sold, should the sale be structured as:
- an asset sale, e.g. using a standard form Contract of Purchase and Sale,
- a sale of the shares of the corporation itself, or
- a hybrid of the above two types?
The answer to this question, as lawyers are wont to say, is “it depends!”
The interests of a buyer may mitigate in favour of one answer, while the interests of the seller may lean in favour of another. There may be factors that should be considered up front, before the parties jump into signing a Contract of Purchase and Sale including:
- tax planning implications (GST, capital gains exemptions, capital cost allowances, etc.)
- service or employment contract continuity concerns
- lease liability or intellectual property issues, and/or
- business continuity concerns.
It’s prudent for agents to recommend their client has engaged the services of other professionals, such as lawyers and tax accountants, even before entering into the transaction. Doing so will assist the client to complete a successful transaction while minimizing the risk of unpleasant surprises for both the client and the agent.
[1] See also Twining, S. and Nilsson, L. “Knowing Your Client”, REEOIC Risk Report, September 2018
