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Real Estate

An Overview of Municipal Tax Sales

As municipal tax sales are not that frequent, it is not uncommon for purchasers to proceed without professional advice. As a consequence, real estate practitioners often are clueless in these transactions due to lack of experience.

Legislated Process

Statutory codes manage the highly regulated municipal tax sales in Ontario. Its predecessor was the Municipal Tax Sales Act, since repealed, when the Act’s statutory regime was introduced as Part XI of the Municipal Act 2001, effective January 1, 2003.

The treasurer decides the method by which land is to be sold for municipal taxes, such as public sale, public auction, or public tender. Those sales are made under a Regulation made up of some 27 sections with related schedules and forms which together make up the Municipal Tax Sales Rules. Sales by public tender happen to be the most common means of selling land to recover taxes.

Unique Features

A common theme of public tender transactions is that people conducting these things have little training or background in them. The distinguishing features of a municipal tax sale from other land transactions in Ontario are in terms of the interest being sold, the title being taken, and the mechanics of the process.

Nature of Sale

The referencing activity in an arm’s length real estate transaction to an agreement of purchase and sale does not exist in a municipal tax sale. Nor are there adjustments, statements of adjustments, and undertakings to readjust. The public auction or public tender is concerned only with price. The purchasers have no opportunity to negotiate terms. Having regard to the consequent risk transfer to purchasers, it is worth questioning the quantum of discount required to consider an acquisition a bargain.

Vendor’s Interest in the Land

Although municipal property taxes are a special lien on land, the legislation, processes the sale of land to recover taxes without a single reference to the land as being sold under lien. Given the fact that the municipality holds no legal title in the land, it is the owner’s interest which is sold. It is more or less like a sale under charge, without the owner having executed a charge document. Neither the sale is through a trustee or receiver, nor it is under court supervision. Legislation meant only for such transactions govern these sales.

Rights of Entry

Interestingly, a municipality has no right of entry before land is sold. Entry is permitted only after the tender is over. Thereafter, a municipality can enter and inspect to determine whether a notice of vesting should be registered. As a result, a municipality is unable to show the land to prospective purchasers, and buyers are called upon to make purchase decisions without entry and inspection.

Deposit

Under the recent OREA forms of agreement of purchase and sale, offers to purchase can be made without delivery of a deposit where payable on acceptance. As opposed to this, the deposit required in a tax sale is substantial at 20% of the price.

The deposit is required to be paid with submission of the tender. It shows how tax sale purchases should be processed and indicates when investigation of title and other due diligence are to take place.  Investigation of title, therefore, has to precede the offer, that is, the tender. Once the tender is made, due diligence will not protect the deposit and the opportunity to exercise due diligence is effectively limited, at best, to the period between tender opening and the time for payment of the balance of the tender. If the purchaser wishes to receive formal notice, the time for due diligence is confined to the fourteen day period the tenderer is given to make the required payment, starting from the date the notice was mailed.

Completion

In the E-Reg administration, real estate closings are essentially escrow closings, which is not there in a tax sale. After the successful purchaser has delivered whatever the treasurer requires, which can include the balance of the amount tendered, the applicable land transfer tax, and accumulated taxes, as well as a land transfer tax affidavit and GST, the treasurer will get a tax deed registered for which there is no time limit. The treasurer is to prepare and register the necessary documents as soon as possible after a successful purchaser is declared, and is not required to inform the purchaser of this. It is appropriate for the purchaser’s solicitor to formally ask for registration immediately upon payment of the balance of the price and to stress that notification be issued as soon as the tax deed is registered.

Role of the Treasurer

The treasurer, and not the municipality, bears responsibility for municipal tax sale proceedings. The tax deed is not signed by the Mayor and Clerk, nor by anyone delegated under by-law. No corporate seal is affixed either. There is no statement of authority to bind the municipal corporation because the document is signed by the treasurer. The treasurer derived both authority and the obligation from the statute to prepare and register a tax deed.

Ensure that your assets are protected. For more information and assistance regarding Real Estate or Canadian tax law contact Levy Zavet PC (Levy Zavet) in Toronto, Ontario today.

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