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By Norman B. Pickell
Lawyer, Mediator, Arbitrator
Goderich, Ontario
www.normanpickell.com
This paper was presented by Norman Pickell to an Ontario Bar Association Real Estate Seminar in Toronto, Ontario on November 25, 2002.
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Introduction
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Access to the Property
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Aggregate Resources Act
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Agreement of Purchase and Sale - see
Offer to Purchase
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Agricultural Associations
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Assets
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Boundaries
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Bank Act - see
Securing the Farm Loan
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Bulk Sales Act
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Closing (including Closing Date)
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Conditions
for the Offer to Purchase
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Conservation Authority
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Construction Lien Act
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Corporate Vendor
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Crops
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Deposit
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Description
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Dispute Resolution
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Documents
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Drainage
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Environmental Issues
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Factory Farms
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Family Transfers
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Farm Implements and Machinery
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Fixtures
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GST Issues
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Hydro Issues
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Income Tax Act
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Inspection of Assets
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Insurance - see
Securing the Farm Loan
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Investment Canada Act - see
Non-Resident Purchaser
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Land Transfer Tax
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Leases
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Line Fences
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Livestock
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Mining and Minerals
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Mortgage/Charge - see
Securing the Farm Loan
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Non-Resident Purchaser
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Offer to Purchase
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Oil and Gas Leases
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Personal Property Security Act - PPSA - see
Securing the Farm Loan
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Planning Act
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Property Taxes
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Purchase Price
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Purchaser - Non-Resident - see
Non-Resident Purchaser
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Purchaser - Taking Title
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Quotas and Marketing Boards - Transfer
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Quotas and Marketing Boards - Security
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Reporting Letter
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Requisitions - Other
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Retail Sales Tax
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Road Allowances and Closures
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Searches
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Securing the Farm Loan
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Sewage System
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Statement of Adjustments
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Survey
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Tax - GST - see
GST Issues
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Tax - Income Tax - see
Income Tax Act
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Tax - Land Transfer Tax - see
Land Transfer Tax
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Tax - Property Tax - see Property Taxes
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Tax - Retail Sales Tax - see
Retail Sales Tax
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Use of Property
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Warranties
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Water Supply
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Waterways
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Web Sites
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Woodlots
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Zoning - see
Use of Property
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Conclusion
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Introduction
Farming is a business - big business! The total capital value of Ontario farm assets in 2001 was $ 50.5 billion. The value of the average Ontario farm is approaching $ 900,000. The cash receipts in 2001 from Ontario farming operations totalled approximately $ 8.5 billion. Huron County (where I come from), generates as much farm revenue in one year as the total annual farm revenue in each of the Maritime Provinces. One in seven jobs in Canada is in the agri-food sector.
Think of the purchase and sale of farms in much the same way that you would treat the purchase and sale of other commercial property and businesses. Some farm purchases involve land only. Others involve a variety of assets. In this paper, I have tried to touch on most of the issues that arise in the purchase and sale of farms. Some of the areas that I cover also pertain to rural, non-farm land. The topics are arranged in alphabetical order.
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Access to the Property
Make sure that there is road access to the property being purchased for whatever part of the year the Purchaser will need access. If the Purchaser intends to live on the property, year-round access will be needed to the house at least. However, the Purchaser may not require access to the fields year-round. Do not assume that every road in a municipality is open year-round. You would be surprised how many roads are posted "No Winter Maintenance Beyond This Point."
The Purchaser's lawyer should ask the Purchaser what kind of road access he or she is expecting. Also ask the Purchaser what the roads look like that provide access to the subject property. Ask the Vendor for a Warranty that the roads are useable and maintained by the municipality year-round (or whatever lesser time is acceptable to the Purchaser). Consider asking the municipality for a letter stipulating the level of access and maintenance that is provided. If the municipality is taking the position that it is not responsible for maintaining a particular road, you want to find that out before Closing!
For more on this topic, please read the following cases:
1. Grierson v. West Wawanosh, [1998] O.J. No. 3173 (General Division);
2. Sibbick v. Blandford-Blenheim, [1991] O.J. No. 2124 (General Division).
If access to the property being purchased is either a provincial highway or a county road, you will need to find out if an entrance permit was obtained or is needed. This is an issue wherever you have an entrance - whether from the main buildings or from a field. If a permit was issued to the Vendor or to one of the Vendor's predecessors, ask for it to be produced.
Pursuant to Sections 31 and 34 of the Public Transportation and Highway Improvement Act, R.S.O. 1990, c. P.50, a permit from the Ministry of Transportation is required to construct, change or use a private entranceway or private road to gain access to a provincial highway.
Section 63 of the Public Transportation and Highway Improvement Act permits a county to pass a bylaw requiring a permit from the county to construct, change or use a private entranceway or private road to gain access to a county road.
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Aggregate Resources Act
Many farm and other rural properties have sand or gravel deposits. Are there licenced aggregate extract operations on the Vendor's property? If so, have the provisions of the Aggregate Resources Act, R.S.O. 1990, c. A.8, been complied with?
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Agricultural Associations
There are several agricultural associations in Ontario and throughout Canada. They can be an excellent source of information for you and your client. Many of these organizations can be found by visiting the
Agricultural Business section of my web site.
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Assets
It is important to list the assets being purchased with as much clarification as possible. Not only are the details needed for the purchase, but they will also be needed for securing the farm loan. The various assets usually come under one or more of the following headings:
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land |
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2. |
house |
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farm buildings |
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fixtures |
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machinery |
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tools |
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livestock |
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quota |
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9. |
feed for animals |
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crops |
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in storage in the barn, silo, granary or elsewhere |
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- in the field |
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goodwill |
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The various assets are treated differently by the various taxing statutes. (Please see my comments under the various Tax Headings.)
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Boundaries
If there is a doubt or dispute about the location of the boundary of a parcel of land, you will need to consider the provisions of the Boundaries Act, R.S.O. 1990, c. B.10. Your client may also have to resort to mediation or court.
Fence-viewers do not have the authority under the Line Fences Act to determine the location of a disputed boundary line. (Please see my comments under
"Line
Fences".)
For more on "Boundaries", please see my comments under "Survey" and
"Waterways".
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Bulk Sales Act
A sale in bulk of the farmer's livestock and implements is subject to the provisions of the Bulk Sales Act, R.S.O. 1990, c. B.14. Therefore, you need to comply with Sections 4 and 8 of the Act.
When the Bulk Sales Act applies, the Vendor must also comply with Section 6 of the Retail Sales Tax Act, R.S.O. 1990, c. R.31, and obtain a certificate from the Minister of Finance stating that all taxes collectable or payable by the Vendor have been paid or that the Vendor has entered into an arrangement satisfactory to the Minister for the payment of such taxes.
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Closing (including Closing
Date)
Because there are so many variables involved in the Closing of each farm purchase and sale, I will leave it to you to develop a checklist that applies to your transaction.
If a marketing board quota is part of the transaction, you will want to pay particular attention to the closing date when drafting the Offer to Purchase. Some Marketing Boards will only make the transfer effective at a certain time of the month.
The Dairy Farmers of Ontario, for example, will make the quota transfer effective on the 1st day of the month. Therefore, if you are buying an ongoing dairy farm operation, you will want to have the Closing take place on the first or last day of the month.
On the other hand, if you are buying a chicken operation, you should set a closing date, which is after a crop of chickens has been marketed and the barns are empty.
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Conditions for the Offer to Purchase
While conditions are important in all types of Offers to Purchase, they are of vital importance when purchasing a farm. Since each farm purchase will be different, I will not try to list all of the possible conditions here. Throughout this paper, I have commented on some of the conditions that should be included in the Agreement of Purchase and Sale.
When wording the Offer to Purchase, do not say "This Offer is conditional upon …." Instead, try using wording that stipulates who is to do what by when.
For example, if the Purchaser needs to arrange financing in order to be able to complete the transaction, you could say:
This Agreement of Purchase and Sale may be terminated by the Purchaser if the Purchaser is unable to obtain financing which is suitable to the Purchaser. The Purchaser must notify the Vendor or the Vendor's lawyer in writing within [ 15 ] days of the acceptance of this Offer of the Purchaser's
inability to obtain such financing. If no such notification is made by the Purchaser, this condition shall be deemed to have been waived by the Purchaser and this Agreement of Purchase and Sale shall be valid and binding whether or not such financing is in fact obtained.
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Conservation
Authority
Section 28 of The Conservation Authorities Act, R.S.O. 1990, c. C.27, allows a Conservation Authority to make regulations applicable to the area under its jurisdiction for prohibiting or regulating or requiring the permission of the Conservation Authority for development (including the construction of any building) if, in the opinion of the Conservation Authority, the control of flooding, erosion, pollution or the conservation of land may be affected by the development.
Therefore, if the land being purchased is within the jurisdiction of a Conservation Authority, you should write to that local Conservation Authority to obtain full particulars of the regulations affecting the land. Generally the Conservation Authority will tell you that it is alright to grow crops on land deemed susceptible to flooding or erosion, but your client won't be able to build on the land. You will also likely need permission for the removal of any trees.
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Construction Lien Act
The provisions of the Construction Lien Act, R.S.O. 1990, c. C.30 apply to agricultural land and buildings. Therefore, you will want the usual Declaration from the Vendor that no work has been done on the property in the 45 days immediately prior to Closing for which a lien under the Construction Lien Act could be registered.
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Corporate Vendor
If the Vendor is a corporation, you will need the same resolutions that you would have if you were buying any other type of business assets from a corporation. When a Marketing Board quota is part of the assets, be careful if you are buying the shares of a corporate farm. A change in ownership of the shares is usually treated the same way for quota transfer purposes as if the farm was owned by a non-corporation. Marketing Board approval will likely be needed to effect the transfer of the quota.
You do not have to contact the Ministry of Finance to check for liens owed under the Corporations Tax Act. Since 1980, if the Ministry of Finance (formerly the Ministry of Revenue) claims a lien, it has to register the lien on title in the Land Registry Office.
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Crops
If there are crops in the barn, silo, granary and fields, are any of them to be included in the purchase? If so, don't just say "all crops" in the Offer to Purchase. Particularize the crops.
If the Vendor is retaining ownership of crops that will still be in the fields after the Closing, you need to address this issue in the Offer to Purchase. This will include the Vendor's right to tend to the growing crops and to harvest or otherwise remove the growing crops from the fields.
If the Purchaser is acquiring the growing crops, something should be stated in the Agreement of Purchase and Sale about the crops that are to be harvested by the Purchaser after the Closing. The Purchaser will want to make sure that the Vendor continues operating the farm until Closing in accordance with normal farm practice. This will include properly tending to the crops in the field until Closing. (The Farming and Food Production Protection Act, S.O. 1998, c. 1, may be of assistance in determining "normal farm practice.")
If the Vendor and the Purchaser disagree on whether normal farm practice is being continued, they will want a speedy resolution of the issue. Probably the best way to resolve the dispute quickly would be to go to arbitration. Therefore, such a clause needs to be included in the Offer to Purchase.
Will the Vendor be entitled to use the hay and the feed to maintain the farming operation until Closing? This topic needs to be covered in the Offer to Purchase.
Are the fields going to be left empty from the time of the Agreement of Purchase and Sale until Closing? If so, consider whether the Purchaser wants to have access to the fields in advance of the Closing in order to be able to plant crops, which can be harvested after the Closing. What happens to these crops if the transaction does not Close on time or at all?
You should indicate in what condition the Vendor is to leave the fields as of Closing, whether ploughed or in some other condition.
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Deposit
When you are dealing with the purchase and sale of agricultural land, and particularly working farms, it is very common to have a sizable deposit. The Purchaser will want the money to be earning interest prior to Closing. Usually the Purchaser will receive the benefit of that interest. Therefore, make sure that you stipulate that the Purchaser is responsible for any income tax payable on the interest.
If the transaction is not completed, specify in the Agreement of Purchase and Sale who is entitled to the deposit and to the accrued interest.
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Description
Do you have a registerable description of the land? If you are in doubt, check with your Land Registrar. Is a survey of the property available? You may need a Reference Plan. If so, negotiate who is to pay for it. For more information on surveys, please see my comments under
"Survey."
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Dispute Resolution
Disputes between the Vendor and the Purchaser can arise at any time after the Agreement of Purchase and Sale has been signed, whether before or after Closing. As in so many real estate and commercial transactions, most of the time the Parties want the problem solved. And being business persons, they want it solved as quickly as possible. They usually don't want their lawyers telling them that they can back out of the deal. They want the transaction to be completed.
Sometimes it is appropriate to make an Application to the Ontario Superior Court of Justice pursuant to the Vendors and Purchasers Act, R.S.O. 1990, c. V.2. This can be done without anything specifically being said in the Agreement of Purchase and Sale.
At other times the Parties may want or need to go to arbitration or mediation. This is particularly true if there is a disagreement about the management of the ongoing farming business where time is critical. Therefore, you should consider appropriate wording to include in the Offer to Purchase.
For more information on mediation and arbitration, please visit the
Mediation and Arbitration
sections of my web site.
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Documents
The purchase and sale of a farm requires the preparation and signing of any or all of the following documents, some of which may be combined with other documents:
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Drainage
There are three different drainage statutes to consider when dealing with farm property.
Drainage Act
The Drainage Act, R.S.O. 1990, c. D.17 deals with two different types of drains.
Section 2 Drains are "Mutual Agreement Drains" whereby two or more land owners agree to work together to construct or improve a drainage works. These agreements may be filed with the municipal clerk and may be registered in the Land Registry Office. If the agreement is registered in the Land Registry Office, it is binding upon the heirs and successors of each party to the agreement.
Section 4 Drains are "Petition Drains" whereby some of the land owners in an area can force all of the land owners in that area to participate in the construction of a municipal drain to drain the area. The cost of the owner's share of the municipal drain is added to the owner's tax roll. It cannot be prepaid by the owner or his or her successors on title. Therefore, the Purchaser cannot require the Vendor to pay off a Section 4 drainage assessment. It will be included in the usual adjustments for real estate taxes.
Section 67 of the Act provides that the unpaid amount of the cost of the drainage works charged against the lands shall be borne by the purchaser of the farm land unless otherwise provided by agreement. The standard Agreement of Purchase and Sale form provides:
"realty taxes including local improvement rates … shall be apportioned and allowed to the date of completion."
During the negotiations and before the Offer to Purchase is submitted, you might want to consider inserting a clause in the Offer dealing with the adjustment for the unpaid balance. (Perhaps the purchase price can be reduced by all or a portion of the amount still outstanding under the Section 4 drainage assessment.)
The Purchaser will also want to know if the property is subject to any potential drainage assessments. Therefore, when you write to the municipality, make sure that you ask for full particulars of any drainage assessment or any petitions for drainage work which have not yet been entered on the tax roll.
Tile Drainage Act
The Tile Drainage Act, R.S.O. 1990, c. T.8, allows a farmer to borrow money from the municipality for the purpose of tiling his or her land. The tile loan is made to the farmer for a 10 year period. It is added to the farmer's yearly property taxes repayable by equal annual installments of principal and interest.
Section 9 of the Tile Drainage Act states that the balance of the tile loan is immediately due and payable if the land is no longer used for agriculture.
Section 13 of the Tile Drainage Act allows the farmer to pay off the tile loan at any time.
The Ontario Divisional Court in Elliott v. Keshwar (1991), 5 O.R. (3d) 342, ruled that a loan under the Tile Drainage Act is an encumbrance which the Vendor is obliged to discharge on Closing. In other words, it is not to be treated like property taxes and adjusted on the Statement of Adjustments, even though the Vendor is allowed to amortize the loan over a period of time and to pay it as part of the farm property tax bill.
When acting for the Purchaser, contact the local municipality. Specifically request details of tile drainage loans which have been entered on the Vendor's tax roll and tile drainage loans which have not yet been entered on the Vendor's tax roll.
If there is a tile loan, requisition a discharge from the Vendor's lawyer pursuant to Section 13 of the Tile Drainage Act.
Put a clause in the Offer to Purchase specifically saying that the Vendor is to pay off the tile loan. Of course, the Purchaser could specifically agree to assume the tile loan, in which case such a clause should be inserted in Offer to Purchase. If the tile loan is being assumed, you should specify in the Offer to Purchase how much the balance of the tile loan is and what the annual payments are.
The Purchaser will want a Warranty on Closing from the Vendor saying that all drainage works are in good operating condition.
The Purchaser will also want to obtain from the Vendor for future maintenance purposes the maps and plans for the land that has been drained.
The Purchaser will want assurance from the Vendor that all tile drainage works are installed on the Vendor's property, and where part is installed on an abutting neighbour's property, the Vendor will provide a proper drainage easement in the farm's favour from the abutting neighbour.
Agricultural Tile Drainage Installation Act
The Agricultural Tile Drainage Installation Act, R.S.O. 1990, c. A.14, requires that a drainage system on a farm be installed by a licensed person (unless the person is the owner or occupier of the agricultural land.) Therefore, you should ask the Vendor about this and obtain something in writing on Closing.
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Environmental Issues
Section 197 of the Environmental Protection Act, R.S.O. 1990, c. E.19, requires the Vendor to give to the Purchaser copies of any orders or decisions made by a person authorized by the Act which affect the property. If this is not done prior to Closing, the deal is voidable at the instance of the Purchaser. Such an order or decision may also be registered on title.
The Purchaser should insist on the Vendor giving a Warranty on Closing - at least to the best of the Vendor's knowledge and belief - that:
1. all environmental laws and regulations have been complied with;
2. no hazardous substances or other contaminants exist on the land;
3. there are no outstanding Ministry of the Environment orders, investigations or prosecutions; and
4. there is no pending litigation respecting environmental matters.
The Purchaser should have a clause in the Offer to Purchase which authorizes the Ministry of the Environment to release to the Purchaser, his or her agent and solicitor, all information that may be on record with the Ministry of the Environment with respect to the said property.
Other than what I have mentioned in various places in my presentation, environmental issues as they relate to farm property are outside the scope of my presentation.
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Factory Farms
At the present time, municipalities can pass bylaws that deal with all types of farms, from the smallest to the largest. The larger farm operations are what are commonly referred to as "factory farms."
However, by the Spring of 2003, Ontario will have a Nutrient Management Act in effect. Once this Act takes effect, municipalities will no longer have the right to regulate factory farms. The Regulations under this Act will replace all of the municipal bylaws. Most of Ontario's farmers will be required to submit detailed information about the number of livestock and the types and amounts of nutrients that they use on their farms. There will be setback distances for applying nutrients around waterways and restrictions for spreading nutrients on snow-covered land. The Ministry of Agriculture and Food will approve the plans and the Ministry of the Environment will enforce the regulations.
The Act and its Regulations will set clear, consistent standards for nutrient management on farms and protect the environment. For the latest information about the Nutrient Management Act and its Regulations, please see the
Ontario Ministry of Agriculture, Food
and Rural Affairs - OMAFRA - web site on the Nutrient Management Act.
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Farm Implements and
Machinery
Farm machinery and tools should be described by the manufacturer, make, model and serial number together with the appropriate description of all of the attachments. Often the Vendor's insurance policy is a good source for the particulars.
The Purchaser will want a Warranty from the Vendor that all of the farm implements and machinery are in good working order and will remain so as of the date of Closing.
The Purchaser will also want the Vendor to Warrant that the farm machinery, implements and tools being purchased are free of all liens, including possible liens under the Repair and Storage Liens Act, R.S.O. 1990, c. R.25. Of course, the Purchaser's lawyer will still conduct a Personal Property Security Act search to confirm that there are no registered liens.
If any of the chattels is a rental, that should be stated in the Agreement of Purchase and Sale. This could include the hot water tank and the propane tanks.
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Fixtures
Today it is possible for farms to come equipped with such things as prefabricated silos erected on concrete pads, feeding and watering systems and milking systems. If you have any of these fixtures in your transaction, they should be specified in the Offer to Purchase.
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GST Issues
The sale of farmland is subject to GST if the use of the farmland continues to be the business of farming, or if the farmer is selling his or her land for development purposes. However, under the Excise Tax Act certain sales of farm land are exempt from GST.
A
Section 167 election not to pay GST is available if ALL of the following conditions are met:
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all, or substantially all, of the farming property that can reasonably be regarded as necessary for the purchaser to be capable of carrying on the business is transferred;
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the purchaser is a GST registrant;
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the vendor and the purchaser jointly agree; and
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the purchaser files an election. |
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If the Purchaser is going to use the land for his or her own
personal use and not for the business of farming, a GST exemption is possible in the following situations:
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The sale of farmland by an individual to a related individual or former spouse (including a former common-law spouse) is exempt if
both of the following conditions are met:
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the vendor is using the property in the business of farming immediately prior to the transfer of ownership; and |
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the purchaser is acquiring the farmland for his or her own personal use and enjoyment, and is not going to use the land in the business of farming.
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The sale of farmland by an individual to a person who is changing the use of the farmland from the business of farming to a personal use is exempt if
all of the following conditions are met:
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immediately before the transfer of ownership, |
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all or substantially all of the land is used in the business of farming; |
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the individual purchaser is a shareholder of the corporation, a member of the partnership or a beneficiary of the trust; and |
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the purchaser, or the spouse of the purchaser or a child of the purchaser, is actively engaged in the business of the corporation, partnership or trust; and
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immediately after the transfer of ownership, the farmland is for the personal use and enjoyment of the purchaser, and is not going to be used in the business of farming.
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The sale of farmland by a corporation, partnership or trust to an individual is exempt if
both of the following conditions are met:
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the vendor was using the property in the business of farming immediately prior to the transfer of ownership; and |
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the purchaser is acquiring the farmland for his or her own personal use and enjoyment, and is not going to use the land in the business of farming. |
If none of the above exemptions apply, you can exempt the GST on the portion of the farmland this is being used for the purchaser's
personal residence provided that in the Agreement of Purchase and Sale you have allocated a portion of the purchase price to the personal residence.
The Agreement of Purchase and Sale should provide for the Section 167 election referred to above, if that is what is intended.
There should also be a clause in the Offer to Purchase that the purchase price does not include GST, and that, if the transaction is subject to GST, the GST will be in addition to the purchase price.
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Hydro Issues
Hydro Arrears
Hydro arrears no longer affect the property. Therefore, there is no need to search for arrears. (The same is true for natural gas arrears.)
Hydro Easements
You will need to search to determine if there are any unregistered hydro easements. You can do this in one of two ways:
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Send a letter of inquiry to Hydro One Networks Inc., Real Estate Services, 12th Floor, North Tower, 483 Bay St., Toronto, Ontario, M5G 2P5; or
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You can search online by clicking
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Income Tax Act
The Vendor needs to comply with Section 116 of the Income Tax Act regarding being a resident of Canada.
Other than what I mention in various places in this paper, the Income Tax implications of buying and selling farm assets are outside the scope of my presentation today.
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Inspection of Assets
You should include a provision in the Offer to Purchase, which will give the Purchaser a right of inspection before Closing and what is to happen if problems are discovered. However, even if such a provision is omitted from the Offer, Re Harkness and Cooney (1979), 131 D.L.R. (3d) 765 (Ontario County Court), is authority for saying that the Purchaser has the right to inspect the property prior to Closing. Therefore, when acting for the Purchaser, you should include this request in your letter of requisitions so that the Vendor is not caught by surprise.
Prior to Closing, the Purchaser and his or her agents (not meant to read "real estate agent") should attend at the site to determine if everything appears to be the same as when the Purchaser submitted the Offer to Purchase. If anything is missing or broken, the Vendor should rectify it before Closing or there should be a holdback on Closing or there should be a reduction in the purchase price.
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Land Transfer Tax
All Purchasers - resident and non-resident - of agricultural land pay Land Transfer Tax at the same rate. (Please see my comments under
"Non-Resident Purchaser - Land Transfer Tax" in this paper.)
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Leases
Is any of the land that is being purchased leased to a third party? If so, can the lease be terminated? When is the rent payable? Does there have to be an adjustment for rent that the Vendor has already received? Does there have to be an adjustment for rent that will be received after Closing? Ask the Vendor for a copy of the lease.
Does the Vendor farmer rent land from a third party that is required for the farming operation? If so, obtain a copy of the lease and look at its terms. Decide if the Purchaser wants (or needs) to continue with the lease. Does there have to be an adjustment for any rent which the Vendor has pre-paid or which the Purchaser (as the Tenant) will owe? Is permission required from the Landlord for the Purchaser to continue with the lease?
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Line Fences
The purpose of the Line Fences Act, R.S.O. 1990, c. L.17 is to help all people - rural and urban - resolve disputes over the construction and maintenance of a line (or boundary) fence. The Act imposes a duty upon a municipality to appoint fence-viewers to carry out the provisions of the Act. One of the duties of the fence-viewers in certain situations is to arrive at an amount where one person must pay a certain amount of money. This is known as the fence-viewers' award. Section 12(5) of the Act provides a procedure for entering the amount of the fence-viewers' award on the responsible party's tax roll.
Therefore, when you are acting for a Purchaser, in your search letter to the municipality, you need to inquire whether there are any proceedings that are pending under the Line Fences Act or if there are awards that have been made where the work is yet to be done, or which has been done and remains unpaid.
You will also want the Vendor to warrant that there are no ongoing or pending proceedings under the Line Fences Act.
You may also want to ask your Purchaser client about the condition of the fences. Are they such that an application under the Line Fences Act may be contemplated by a neighbour, thus causing your client to incur unexpected expenses soon after the deal closes?
The Line Fences Act does not confer upon fence-viewers the authority to settle questions of title to land or to determine the location of a disputed boundary line. Such disputes can only be settled by the Courts. (See Re Griffin v. Catfish Creek Conservation Authority, [1968] 1 O.R. 574 and Delamatter v. Brown (1908), 13 O.W.R. 58)
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Livestock
All of us can tell a horse from a cow from a sheep from a goat. But when talking about the purchase and sale of livestock, you need to be more descriptive in the Agreement of Purchase and Sale and in the Bill of Sale. The easiest way to obtain the particulars about the livestock is to ask your client. He or she will be able to tell you about the breed of livestock being purchased and whether you have purebred registered animals and whether you have such things as cows, bulls, steers, heifers, calves, ewes, sows, etc. This information can then be included in the Offer to Purchase and in the Bill of Sale.
If the Purchaser is acquiring livestock, the Purchaser should include the following provisions in the Offer to Purchase:
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All animals will be free of disease on the date of Closing;
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All inoculations and vaccinations for the animals will be current;
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The animals being sold are in good health and will be in good health at the time of Closing;
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The Purchaser has the right to have the animals examined by a Veterinarian of his or her choosing prior to Closing;
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Specify what is to happen if the Veterinarian says that an animal is not in good health; and
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(If the transaction involves registered animals), the Vendor will provide to the Purchaser on Closing all of the registration papers for the animals. |
As with the purchase of any ongoing business, when the transaction includes livestock, the Purchaser will want to make sure that the Vendor continues operating the farm until Closing in accordance with normal farm practice. (The Farming and Food Production Protection Act, S.O. 1998, c. 1, may be of assistance in determining "normal farm practice.") Therefore, the appropriate clauses need to be included in the Offer to Purchase.
If the Vendor and the Purchaser disagree on whether normal farm practice is being continued, they will want to refer the matter to arbitration for a speedy resolution. Therefore, such a clause needs to be included in the Offer to Purchase.
Please refer to "Purchase Price" for my comments concerning changes in the number of livestock between the time that the Agreement of Purchase and Sale is signed and the Closing.
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Mining and Minerals
There are parcels of land in Ontario where the landowners own the surface rights but do not own the mineral rights below the land. Therefore, you need to determine whether the Vendor owns the mineral rights. To do this you look at the Crown Patent to determine whether mineral rights were granted by the Crown, and then see who ended up owning the mineral rights. Any reconveyance of the mineral rights to the Crown will appear in the abstract of title.
Canada Company Land
Some of the land in Ontario was owned by the Canada Company. As it sold land to settlers, the Canada Company often reserved the mineral rights to itself. The Canada Company eventually quit claimed all of the mineral rights to the Crown. For many years, owners of the surface rights were able to apply to the Ontario Government and obtain those mineral rights. On December 18, 1997, Section 180.1 of the Mining Act, R.S.O. 1990, c. M.14, vested the mineral rights in any former Canada Company Land to the owners of the surface rights of those lands. The Ministry of Northern Development and Mines will not issue any form of certificate of this vested right. However, the landowner may choose to apply under Section 75 of the Land Titles Act, or register a deposit under Section 105 of the Registry Act, stating that the mineral rights vest with the landowner by virtue of Section 180.1 of the Mining Act.
Mining Act
The Mining Act, R.S.O. 1990, c. M.14, provides a statutory right to stake mining claims in Crown mineral rights even if the surface rights are privately owned. Section 78 of the Act requires that the holder of the mining claim notify the landowner of an intention to perform assessment work on the claim. The holder of the mining claim can then enter upon the land at any time and perform the work. Therefore, the Purchaser of land where the Vendor does not own the mineral rights will want to know if the Vendor has received any notice under Section 78 of the Mining Act.
Section 79 of the Mining Act provides for a process of compensation if there is damage to the landowner's property. Thus, the Purchaser's lawyer will need to ask if there is any money still to be paid under Section 79 of the Mining Act and who is entitled to it.
Section 32 of the Mining Act prohibits prospecting and staking on that part of a lot where there is a dwelling, a garden, an orchard, a vineyard, a plantation, or growing crops that may be damaged, except in certain circumstances.
Section 151 of the Mining Act allows the Government to register a Charge in the Registry Office against land where the Government is recovering certain costs that it has incurred in the rehabilitation of mining lands. No transfer of the land can take place until the Charge is cancelled.
Section 189 of the Mining Act makes owners of the mining rights liable for a mining land tax. Section 190 of the Act does allow the Minister of Northern Development and Mines to exempt land that is being used for farming where there is not a severance of the surface and mining rights. Again, the Purchaser should make inquiry in appropriate circumstances.
Mining Tax Act
Other than checking the title to the property in the Registry Office, you do not have to conduct any searches for liens under the Mining Tax Act, R.S.O. 1990, c. M.15. Section 18 of the Act states that the title to land is free and clear of any unregistered liens.
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Non-Resident Purchaser
If the Purchaser is a non-Canadian who does not yet live in Canada, the Offer to Purchase should be conditional on the Purchaser obtaining a landed immigrant visa.
Much of the legislation which penalized non-resident purchasers of farm land in the past has been repealed or replaced.
Investment Canada Act
The Investment Canada Act, which is the federal successor to the Foreign Investment Review Act, does not apply to the purchase by a non-Canadian of a farming business.
- see Section 10 (1) (k) of the Investment Canada Act
Land Transfer Tax
The 20 per cent Land Transfer tax that was payable by non-residents on the purchase of farm land, recreational land, woodlots, orchards and other agricultural land was eliminated with the May 6, 1997 Ontario Budget. Non-residents now pay Land Transfer Tax at the same rate as residents.
Non-Resident Agricultural Land Interests Registration Act
The Non-Resident Agricultural Land Interests Registration Act had required non-resident purchasers of agricultural land to file certain documentation. However, this statute was repealed effective March 1, 1997.
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Offer to Purchase
While some of the clauses in an Offer to Purchase are common to all other types of real estate transactions, there are clauses that are specific to farm purchases. Since each farm purchase will be different, I will not try to list all of the possible clauses here. Throughout my paper, I have commented on some of the clauses that should be included in the Offer to Purchase.
If the Purchaser intends to build a residence on the farm, the Offer to Purchase should be conditional upon the Purchaser:
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being
able to obtain a building permit prior to Closing; and
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being able to obtain approval prior to Closing to construct a suitable septic system after Closing.
(Please see my comments under "Sewage System.") |
Today farm operations often have their own pumping and storage facilities for gasoline, diesel and propane which are used for the tractor, combine and other farm vehicles. Clarify in the Offer to Purchase who owns these facilities.
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Oil and Gas Leases
Many farms and other rural properties are subject to registered oil and gas leases. Most of the leases are drawn for a fixed period of time and provide that the lease is null and void if no drilling occurs within the time period, or alternatively, if no rent is paid.
If the lease is no longer in force, ask the Vendor's lawyer to provide a Vendor's Declaration that there has been no drilling or payment of rent under the lease. The lease is then usually void in accordance with the terms of the lease.
Sections 2 and 3 of the Gas and Oil Leases Act, R.S.O. 1990, c. G.3, provide the procedure for obtaining an Order in the Ontario Superior Court of Justice vacating an oil and gas lease from the Vendor's title. Pursuant to Section 7 of the Act, an Order declaring the gas or oil lease void and vacating the registration of the lease can then be registered on title.
If the lease is still in force and the Lessee will not provide a surrender, ask the Vendor to provide an assignment of the lease. There can then be an appropriate credit made on the Statement of Adjustments in favour of the Purchaser for any prepaid rent.
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Planning Act
In urban areas, a whole lot in a plan of subdivision can be conveyed without requiring a severance even though the Vendor owns an abutting whole lot in a plan of subdivision. (See Section 50 of the Planning Act.) However, in rural areas, a whole lot in a concession is
not exempt from the severance requirements. Therefore, if the Vendor owns all of Lots 1 and 2, Concession 5 and those lots abut each other, the Vendor needs a severance in order to be able to sell one of the lots while retaining the other.
Some natural boundaries sever a rural property; some do not.
Examples of boundaries which do sever a rural property are:
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The Purchase and Sale of Farms in
Ontario