Building on Michael’s post from last week, another issue facing foreign investors in the Canadian real estate market are restrictions on the acquisition and ownership of land in the Prairie Provinces.

Alberta’s Foreign Ownership of Land Regulations (the “Regulations”) restrict foreign acquisition of interests in mainly rural land by the establishment of a scheme of controlled and uncontrolled land. Controlled land typically refers to farm land and ranches – the Regulations provide that controlled land means land in Alberta, excluding Crown land, land within the boundaries of a city, town, new town, village or summer village, and all mines and minerals. The Regulations do not apply to uncontrolled land, which mainly encompasses urban centres in Alberta.

Under the Regulations, foreign citizens and foreign controlled corporations are prohibited from acquiring, directly or indirectly, an interest in controlled land; however, foreign citizens and foreign controlled corporations may acquire an interest in controlled land if, as a result of the acquisition, the foreign entities’ interests in controlled land do not exceed two parcels containing, in total, not more than 20 acres.

The Regulations provide for a number of exceptions to this general rule, and specifically do not prohibit the acquisition of an interest in controlled land for pipelines, oil and gas processing plants, refineries, power plants, electric distribution systems, or extractions of coal and aggregates. Further, under certain conditions, industrial processing, manufacturing, commercial or transportation facilities and residential subdivisions are exempt.

The restrictions apply to a broad range of interests in land – including beneficial and leasehold interests – and are not strictly limited to acquisitions of real estate. For example, a foreign entity may lease controlled land for a maximum term of 20 years; however, the lease cannot provide for renewals or extensions which in effect extend the term beyond 20 years.

Transactions that do not appear to involve real estate may also be impacted by the Regulations. For instance, an acquisition of the majority of shares of a corporation owning controlled land by a foreign citizen or foreign controlled corporation is considered an acquisition of an interest in controlled land. In this situation, the foreign controlled corporation has 3 years to divest itself of the controlled land so acquired.

The Regulations require additional filing and disclosure when acquiring an interest in controlled land. Failure to file the prescribed statutory declaration either proving residency/citizenship or applying for a prescribed exemption when submitting documents for registration at the Alberta Land Titles Office will result in a rejection of registration of interest.

Bottom line, the Regulations must be considered before entering into a transaction with a foreign entity involving real estate interests or a corporate change of control.