Apr 01, 1993

Rental Clause #201

Apr 01, 1993

Rental Clause #201

By Gerry Neely
B.A., LL.B.

Sometimes a simple clause such as the one which follows conceals problems which lead to litigation.

"Vendor may retain all rental monies collected from tenants prior to completion date, and purchaser may retain all rental monies collected from tenants on or after completion date."

A dispute arose between the parties as to who was entitled to prepaid rents collected by the vendor before the completion date and to the accounts receivable arising from unpaid rents which were owed to the vendor at the completion date. Since the meaning of the clause was clear, the vendor retained the prepaid rents and the purchaser received the rents owed to the vendor at the completion date, which the purchaser received from the tenants after the completion date.

The result was unfair because a tenant's payments may be a day or so late or, in commercial leases, the rent paid for the last month or so of the term may be substantial. While the clause to be drawn obviously depends upon the circumstances, generally this clause should provide that the purchaser is credited with rent paid to the vendor for any period following the completion date, and the vendor is entitled to unpaid rents for any period prior to the closing date.1


Property purchase tax is payable upon the fair market value of the land which is being transferred. The calculation of "fair market value" is based upon the interaction of the fictional willing vendor and purchaser, a concept which joins the "average man" and the "reasonable man" as standards by which judges try to determine right from wrong, or in this case more from less.

The definition found in the Property Purchase Tax Act is more complex than this and an amendment to this definition may be the result of a 1992 case involving a number of individuals who incorporated a company to purchase a parcel of land in trust for them. The company was then to strata title the land and convey to each of the individuals the lot to which that individual was entitled. The land value in March, 1990 when title was transferred to the company, was $825,000. Eighteen months later following the subdivision, the value of all of the parcels transferred to the individuals was $2,500,000.

No property purchase tax was paid because the owners claimed an exemption allowed upon a transfer by individuals of a single parcel of land, where the fair market value of each individual's interest in the land immediately prior to subdivision is equal to the fair market value of the registered interest the individual receives after the subdivision.

The Crown assessed tax and the owners appealed. There was no evidence of value other than a statement in the petition that the fair market value of the parcel was the same both before and after the transfer. The owners' argument was based upon a subdivision into strata lots occurring when the Registrar gives the plan a number and registers the new titles for the strata lots. Since these events occur virtually simultaneously the court agreed with the owners that the value was the same both before and after subdivision and the exemption applied.

From the comments I receive it is evident that some licensees are not aware that there are a number of exemptions to the Property Purchase Tax Act. In fact, there are 38. The ones with which we are most familiar are the exemptions for a principal residence, recreational property, transfer of property to and from joint owners and the family farm. A number of other exemptions apply to transfers to charities, governments, veterans or their spouses and transfers to and from trusts.

It is important to remember that only part of the principal residence may be exempt if the area of land exceeds .5 hectares, and that no part of a recreational residence will be exempted if the value exceeds $200,000, or the area exceeds 5 hectares. Anyone wanting to know the exemptions in greater detail should be able to obtain an instruction guide from the local Land Title Office or government agent's office.2

 1. Rex Investments v. Bayne, 25 R.P.R. 16.
 2. Rowan v. Her Majesty the Queen in Right of the Province of British Columbia, S.C.B.C., Vancouver Registry, November 30, 1992.

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