By: Catherine L.H. Lee & Jennifer K. Myhal
The Land Owner Transparency Act (“LOTA”) was enacted with the intention of eliminating hidden ownership of land by requiring certain corporations and other entities holding interests in land to publicly disclose the beneficial owners behind these entities. LOTA introduces mandatory reporting requirements regarding indirect ownership of land and grants the public access to a searchable database called the Land Owner Transparency Registry (“LOTR”). Persons and entities with direct, legal ownership interest in land are required to file transparency declarations and, in some cases, a transparency report with the LOTR.
Effective November 30, 2020, each transferee to be named as a registered owner of an interest in land must file a transparency declaration concurrently with every application to register an interest in land. If a registered owner holds real property for the benefit of a third party, it will also be required to file a transparency report.
A reporting body with an interest in land is required to file a transparency report. The transparency report must be completed, signed and certified by a person with knowledge of the facts contained in the document and authority to sign on behalf of the reporting body.
A registered owner is considered a reporting body if it falls within one or more of the following 3 categories:
In addition to ownership of land in fee simple or life estate, the following interests in land require disclosure pursuant to LOTA:
LOTA comes into force on November 30, 2020. As of that date, a transparency declaration and/or a transparency report must be filed with the LOTR upon any of the following triggering events:
(a) Determining Interest Holders
Once the reporting body has been identified, it must determine who its interest holders are in accordance with the following criteria:
(b) A Deeper Dive into the Meaning of Corporate Interest Holder
Sometimes, determining interest holders requires tracing through layers of a particular ownership structure to determine the ultimate individuals who must be disclosed in the transparency report. “Corporate Interest Holder” is defined broadly under LOTA to capture direct and indirect ownership of shares and direct and indirect control of the relevant corporation. The rules are detailed and technical in nature, as discussed below.
(c) Meaning of Ownership
A person (“Person” includes a natural person or a non-natural person such as a corporation, trust, partnership or other legal entity) is a corporate interest holder if such person is the registered (legal) and beneficial owner of the shares, or is not the registered owner but is the beneficial owner of the shares. A beneficial owner includes a person who owns shares through a trustee, personal or other legal representatives, agent or other intermediaries. An example of a corporate interest holder would be an individual for whom at least 10% of the shares of the corporation are being held in trust by the registered owner of the shares for that individual’s benefit.
A beneficial interest in shares does not include an interest that is contingent on the death of another individual (LOTA, s. 3(2)(ii)).
If the registered or beneficial owner of shares is not an individual, such a registered or beneficial owner may be a relevant intermediary, whereby the corporate interest holder exercises indirect control of such shares (see discussion below).
(d) Intermediaries: Meaning of Indirect Control of Shares
Indirect control of a relevant corporation exists where the shares are held by a relevant intermediary or chain of relevant intermediaries. You do not have to disclose the relevant intermediaries within the transparency report, but you will need to identify the individuals with control of the relevant intermediaries, i.e. the interest holders. A relevant intermediary is any one of the following individuals or entities that is controlled by another person:
If at least 10% of the voting shares or equity of a relevant corporation or the right to appoint or remove a majority of directors is held by a relevant intermediary, you must then determine who has control of the relevant intermediary. Sometimes a relevant intermediary is controlled by another relevant intermediary – a chain of relevant intermediaries – you must keep going up the hierarchical relationship until you identify an individual that is not a relevant intermediary.
The criteria for determining control of a relevant intermediary is as follows:
(e) Meaning of Indirect Control of Directors
An individual is a corporate interest holder if he or she has one or more of the following rights or abilities, which if exercised, would result in the election, appointment or removal of the majority of the directors of a relevant corporation:
(f) Joint Interests: Ownership or Control with Others
An interest or right in respect of a relevant corporation may be held by two or more individuals who, in the aggregate, hold at least 10% of the shares or voting rights of the corporation, or who, collectively have the right to appoint or remove a majority of the directors of the corporation. In the following circumstances, each individual would be considered to own or control the interest or right with others, and each individual would be considered a corporate interest holder:
Once the type of reporting body and the interest holders of the reporting body has been determined, the next step is to provide identification information in the transparency report about the reporting body and the interest holders, which can be divided into two categories: primary identification information (publicly accessible information) and specific information (not publicly accessible with respect to interest holders and individual trustees or settlors).
(a) Identification Information about the Reporting Body
(b) Identification Information about Each Interest Holder or Individual Settlor
Reporting bodies must take reasonable steps to obtain and confirm the accuracy of all the required information in a transparency report. Interest holders have an obligation to provide requested information. If the reporting body is unable to acquire all required information, the reporting body must provide a summary of steps taken to obtain or confirm the information.
A reporting body must take reasonable steps to notify each interest holder identified in the transparency report about the report before it is filed, and must include in the report a list of interest holders and settlors to whom notice was given and if notice was not given to certain interest holders or settlors, a summary of steps taken to give notice to those interest holders and settlors.
The notice must contain the following statements:
Within 7 days after submitting a transparency report, a reporting body must also take reasonable steps to give to each interest holder and settlor, as applicable, an extract from the report showing the information contained in the report with respect to each interest holder or settlor.
As of April 30, 2021 (the anticipated launch date of LOTR search), the public will be able to search the LOTR by:
The public’s access to the information contained in transparency reports will be limited to primary identification information. A person may apply under section 40 of LOTA to have his or her primary identification information removed from the public search on a reasonable belief that the public’s access to primary identification information may pose a threat to the health or safety of him or herself or member(s) of the household. The application must be supported by evidence, but the LOTR Administrator must omit the information pending review and determination.
There are five entities with full access to and the ability to search all information contained in a transparency report, including specific information:
Reporting bodies who fail to file a transparency report or file false or misleading information in a transparency declaration or transparency report are liable to a fine of up to the greater of (i) $25,000 for individual or $50,000 for persons other than individuals; and (ii) 15% of the assessed value of the property to which the transparency report relates.
An interest holder or settlor who fails to give information is liable to a fine of up to the greater of $50,000 for individuals and $100,000 for persons other than individuals.
If a corporation or an LLC commits a contravention or offence under LOTA, an officer, director, manager or agent of the corporation or LLC who authorized, permitted or participated in the commission of the contravention or offence may also be subject to an administrative penalty or deemed to have also committed an offence, whether or not the corporation or limited liability company is prosecuted or convicted.
We understand that the new reporting requirements under LOTA may be a daunting and onerous task. LOTA not only affects real estate transactions but also affects corporate reorganizations or changes in share ownership, including estate planning and transmissions to executors or administrators. Our team is ready to assist you in reviewing your real estate holdings and estate plan, preparing questionnaires to help you determine interest holders, and provide you with template notices to send to interest holders to help you comply with LOTA before the filing deadline. We can advise you on future real estate transactions and ownership structures and assist you in the timely completion of your real estate acquisitions.