Corporate Minute Books and Real Estate

by Howard Oldham

We frequently remind clients of the requirement to maintain current minute books. It is a legal obligation that often gets neglected as the operations of the company continue and no one comes asking. For one thing, when faced with a CRA audit, it is not pleasant to add updating the minute book to the list of tasks to prepare for the audit. Another unpleasant surprise is when we begin negotiations to sell all or a part of the company, and realize that updating the minute books will be added to the time and cost of concluding the sale. A third commonly encountered issue is the transfer of shares upon the death of a shareholder in a closely held corporation, such as a family business, triggering the need to update the minute book without the ability to have an original signature. While none of those problems is insurmountable, it is certainly preferable to update the minute book on an annual basis and following any major changes in the organization. 

Soon, corporations will have another record keeping requirement. Effective December 16, 2016, the Ontario Business Corporations Act will have a new section 140.1 mandating that “A corporation shall prepare and maintain at its registered office a register of its ownership interests in land in Ontario.” This will immediately apply for new companies incorporated on or after December 16, 2016. Existing companies will have two years to come into compliance with this requirement.

The register will have to identify the land, as well as state when a corporation acquired and, if applicable, disposed of the land. The paperwork associated with acquiring, transferring ownership, and/or selling the property must be kept. This will assist to identify the municipal address, if there is one, the unique Property Identification Number in our land registration systems, the legal description, and the assessment roll number, if any.

This additional record keeping requirement is not likely to be onerous for most of our clients, but it is important to start thinking about and not leave the creation of the register to December 15, 2018 for existing companies!

DOES THE LEGAL DUTY TO ACT IN “GOOD FAITH” REQUIRE A VENDOR TO AGREE TO AN EXTENSION OF THE CLOSING DATE?

by Howard Oldham

 

The Superior Court of Ontario, in 2336574 Ontario Inc. v. 1559586 Ontario Inc. [2016] ONSC 2467, recently ruled that a Vendor does not have a legal obligation to extend a closing date even for a day.  In this case, the purchaser asked for a brief extension of one day without giving a reason for doing so.  The Vendor refused to grant the extension, also without giving a reason.  The purchaser sued to complete the transaction and alternatively asked for relief from forfeiture of their deposit.  On the other hand, the vendor sued to keep the deposit.  Interestingly, both parties argued that the other party failed to live up to their legal obligation to act in good faith and to deal fairly with the other.

                         

The court found that where parties have a long-term, ongoing relationship, a level of good faith may require them to be more flexible and agree to requests which may not conform to the strict wording of the contract.  However, in cases such as this one where the parties are involved in a singular transaction (i.e. not a long-term ongoing relationship) and are experienced in real estate transactions – “Good Faith” meant that the parties had to abide by the strict wording of the contract.  As such, the court allowed the vendor to keep the deposit and the purchaser was not entitled to complete the transaction.

 

In their arguments, both the vendor and purchaser relied on the Supreme Court of Canada’s judgment in Bhasin v. Hrynew, [2014] S.C.J. No. 71 which requires contracting parties to deal with each other in “good faith” and “fair dealing”.  The court in this case, clarified that the duty of good faith required by contract law is measured by the specific relationship between the parties.  The test being “whether, in the particular context, the conduct would be regarded as commercially unacceptable by reasonable and honest people”.

 

 

Since this was a “one-off” deal between an experienced commercial vendor and purchaser, the court found that the duty of good faith meant “…  sticking to the contract, not bending the contract – even just a little bit – to one side’s will”.

Newsletter: December, 2015

by Howard Oldham

REFLECTING ON SOME DIFFICULT REAL ESTATE DEALS THAT COULD HAVE BEEN EASIER

THE LENDER WILL WANT TO BE NAMED AS AN ADDITIONAL INSURED

It is surprising how many clients are not aware that their lender will require that they be named as an additional insured on the purchaser’s insurance policy.  Obviously, if the building burns down, the lender will want to be protected as part of their security.  We have had deals where purchasers refused to close because they were unaware of this requirement.

YOU NEED TO SPECIFY THE CHATTEL LIST

Wording such as “All contents as seen on property at time of the offer to purchase”, or “Excluding all personal items”, mean nothing and everything.  Such wording leads to a lot of unhappy buyers and sellers, never mind numerous small claims court actions.

IF THE PURCHASER IS GETTING A MORTGAGE, THEY NEED TO TELL THEIR LAWYER

You would not believe the number of times that we are on the eve of closing a purchase and the purchaser then mentions that they are getting a mortgage.  We then have to scramble to attempt to get the mortgage in place for closing.  Often the mortgage instructions require a water potability test, septic permit, confirmation of zoning etc., that cannot be obtained quickly.  Getting mortgage instructions late is the number one reason closings are delayed because the lawyer simply can’t get the mortgage money quick enough.

Another major problem is when purchasers switch lenders on the eve of  closing.  Many purchasers don’t understand that the lawyer cannot complete the mortgage work on short notice.  For instance, it often takes two days just to requisition the mortgage funds even if all the other requirements and paperwork of the lender are already completed.

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