Real Estate Joint Ventures in Ontario: Key Terms to Agree On

Two investors pooling money to buy or develop property usually start with a handshake and a shared spreadsheet. The harder questions come later: who decides, who is on the hook for a debt, and how does one person leave.

A joint venture is mostly a matter of what you agree in writing, with a few Ontario statutes in the background. This article covers that backdrop and the terms worth settling up front. It is general information, and the right structure depends on your plan.

A joint venture is mostly a contract

There is no single Ontario statute that sets out what a real estate joint venture must contain. The parties' agreement does most of the work. The statutes matter mainly because they supply default rules that apply when your agreement is silent.

Two of those defaults are worth knowing at the start. When land is granted to two or more people, they are treated as tenants in common, not joint tenants, unless the document clearly shows they are to take as joint tenants, and this applies even if the owners are spouses. That presumption does not apply to executors or trustees.

Co-ownership or partnership?

Investors often assume that sharing a property means being in a partnership. The law draws a line. Owning property together as joint tenants or tenants in common does not by itself create a partnership, even if the owners share profits from the property. A partnership exists where persons carry on a business in common with a view to profit.

The joint liability rule is subject to the provisions on limited liability partnerships. If limiting your exposure matters, ask a lawyer whether a partnership, a corporation or another structure fits your project. A venture that actively buys, improves and resells may look more like a business than passive co-ownership.

Terms to agree before money moves

Whatever the structure, put the working rules in writing. The list below covers the questions that most often cause trouble later.

• Contributions: how much each party puts in, when, and what happens if one cannot fund a shortfall.
• Profit and loss split: whether it follows the money in, the work done, or something else.
• Decision-making: which decisions need both parties, such as borrowing, major repairs, selling or refinancing.
• Management: who runs day to day, who signs, and who pays the bills.
• Title: whose name is on title and whether the agreement records the other party's interest.
• Exit: buy-sell rights, a sale deadline, valuation method and what happens on death, divorce or bankruptcy.
• Disputes: a deadlock process, such as negotiation, mediation or arbitration, before anyone goes to court.

If the property is being built or renovated, contractor payments bring in the Construction Act. Every payer under a contract or subcontract on which a lien may arise must keep a 10 per cent holdback. Decide who is responsible for holdbacks and for clearing any lien that is registered.

Holding title for each other, exits and disputes

Sometimes one investor holds title for both. CRA describes a bare trust as one where the trustee is essentially an agent for the beneficiaries. Bare trusts do not have to file a T3 return or Schedule 15 for taxation years ending on or after December 31, 2024 and before December 31, 2026, but reportable bare trusts may have to file for years ending on or after December 31, 2026. The definition of a reportable bare trust excludes some arrangements, such as related persons holding a property that is their principal residence. Because this area is changing, ask an accountant how it applies to you.

If the relationship breaks down and there is no agreed exit, the default is the Partition Act. Anyone with an interest in land in Ontario may bring an action or application for partition of the land or for its sale, and joint tenants and tenants in common may be compelled to make or suffer partition or sale.

There is an exception. Where jointly held land passed by will or intestacy, no partition proceeding may be taken until one year after the death. Separately, if a spouse is involved, the Family Law Act says no spouse may dispose of or encumber an interest in a matrimonial home unless the other spouse joins in or consents, or another listed exception applies. How these rules fit together on your facts is worth confirming with a lawyer. A court process is slow and uncertain, which is why a written exit clause is worth having.

What to do next

• Write down the deal in plain terms before you sign an offer or send money.
• Decide whether you are co-owners, partners or using a corporation, and understand the liability that comes with each.
• Check how title will be held and whether a bare trust is involved.
• Agree on an exit path and a dispute process, so a disagreement does not end in a forced sale.
• Have a lawyer review the agreement and an accountant review the tax treatment.

Frequently asked questions