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Professional Standards Manual

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4. General Information

(a) Contract Clauses - View Entire Section

(X) Dealing with Legal/Beneficial Owners

The person or company shown as the registered owner of real property on the Certificate of Title at the Land Title Office may not be the person or company who signs the Contract of Purchase and Sale as seller of that property. Under what circumstances might that occur, what are some of the legal issues involved, and what should you do as the licensee who may be involved in the sale?

In trades in real estate, for a variety of reasons, one entity may appear as the registered owner of real property and another entity may sign the Contract of Purchase and Sale as seller. This may happen, for example, if the registered owner holds the property in trust for another entity. In that case, the beneficial owner (the person(s) for whom the property is being held in trust), may sign the contract. If the contract is signed by the beneficial owner, there will usually be a recognition of the trust in the contract (e.g., John Doe in trust for Mary Black). As well, there will normally be a covenant by the buyer to accept a transfer from the registered owner and not the beneficial owner who signs the contract. That covenant acts as a waiver of section 6 of the Property Law Act, which provides that the person who signs the contract as seller is the person who must sign the transfer. There may be warranties and representations of the beneficial owner, of the registered owner, of both, or limited warranties and representations of each.

In other circumstances, the registered owner may wish to structure the transaction as a sale of shares, rather than a sale of the real property. The sale may involve the shares of the registered owner or the shares of the beneficial owner of the real property.

Because real estate contracts involving different legal and beneficial owners can be complex, lawyers should draft these contracts and should advise the sellers and buyers in respect of these contracts to ensure that all legal issues are appropriately addressed. Licensees should not draft such contracts nor should they provide legal advice respecting those contracts.

Even in a relatively simple residential real estate transaction, problems can arise, which, if the licensee undertakes the drafting of such a contract, may expose the licensee to liability. For example, if a licensee attempts to draft such a contract prior to receipt of the results of a title search, a contract for sale may be drafted with the seller when, in fact, the property is legally owned by some other person or company. In that case, the seller may have to transfer title into his or her name to comply with section 6 of the Property Law Act (a costly transaction involving, in part, Property Transfer Tax) or face the possibility that the buyer may legally refuse to complete if presented with a transfer from the seller as shown on the contract, rather than the registered owner as shown on title.

In a simple residential trade in real estate, depending on the circumstances, the lawyer might deal with the issue of split legal /beneficial ownership as follows:

1. have the contract signed by the beneficial owner;

2. include a statement in the contract such as ‘‘The Buyer acknowledges that the property is held in trust for the Seller by (name of registered owner) the ‘Registered Owner’’’; and

3. include a covenant of the buyer such as ‘‘The Buyer agrees to accept a transfer executed by the Registered Owner in satisfaction of the Seller’s obligation pursuant to section 6 of the Property Law Act’’.

Licensees involved in these types of transactions should use caution and advise the sellers and buyers to obtain legal advice.