Real Estate Joint Ventures in Ontario: Structures and Risks

When investors pool money to buy or develop property, the first question is usually how to hold it: through a corporation, a partnership or simply as co-owners on title. Each choice affects who is liable if something goes wrong, who can sign for the group, and how someone gets out.

This article explains the Ontario rules that sit behind those choices. Much of a joint venture is a matter of contract, so the rules below are a backdrop, not a substitute for a carefully drafted agreement.

Three common ways to structure a joint venture

Most investor groups end up in one of three structures, or a mix of them. The right one depends on the project, the number of investors, financing, tax and how long you plan to hold the property.

Many groups hold a project through a corporation, but how a corporation would work for your project depends on your situation, so it is worth confirming with a lawyer. Lenders may still ask investors for personal guarantees, so ask what a lender will require before you choose.

Co-tenancy: owning land together

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. This applies even if the owners are spouses. The presumption does not apply to executors or trustees.

Co-owners can be forced out of a stalemate. 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. Where jointly held land passed by will or intestacy, no partition proceeding may be taken until one year after the death.

If an investor is married, the matrimonial home has its own rules. 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. If a spouse dies owning a matrimonial home interest as a joint tenant with someone other than their spouse, the joint tenancy is deemed severed immediately before death, so the right of survivorship does not operate.

Partnership: when co-owners become partners

Owning property together 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. A group that actively buys, improves and resells property may be closer to that line than a group that simply holds a rental.

The consequences of being a general partnership are serious. Every partner is an agent of the firm and can bind it. Every partner is jointly liable for all the firm's debts and obligations. That general rule is subject to the provision covering limited liability partnerships.

In practice this means one partner's signature on a contract or loan can affect everyone. Many groups choose a structure, and write limits on authority into their agreement, specifically to manage that risk.

Bare trusts and holding title for others

Sometimes one investor or a nominee is on title for the group. 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.

Some arrangements are excluded from the definition of a reportable bare trust, including a parent on title so a child can obtain a mortgage, and related persons holding a property that is their principal residence. A trust whose assets have a total fair market value of no more than $50,000 throughout the year can also be a listed trust for taxation years ending on or after December 31, 2024. Reporting rules are changing, so confirm the current position with an accountant.

What the agreement should say, and next steps

Whatever structure you choose, the written agreement does most of the work. Before anyone contributes money, settle these points and put them in writing:

• Who contributes what, and when, and what happens if someone cannot pay a later call for money
• Who makes day-to-day decisions and which decisions need everyone's approval
• Who can sign contracts, borrow or grant security for the group
• How profits, losses and sale proceeds are shared
• How a partner or owner can exit, sell their share or be bought out
• What happens on death, divorce, bankruptcy or a dispute
• How the property will be sold at the end, and who decides when

Next, speak with a lawyer about structure and with an accountant about tax before you sign or register anything on title. Ask both to look at your lender's requirements at the same time.

Frequently asked questions