The Quebec Court of Appeal recently concluded in 9267-0801
Québec inc. v Ville de Montréal that, in the
context of the transfer by the "emphyteuta" (the term
used in the Civil Code of Quebec for the beneficiary of the right
of the emphyteusis) of its rights of emphyteusis, the purchaser of
such rights is required to pay transfer duties on the basis of the
municipal evaluation of the property and not on the actual
consideration paid (if less than the municipal evaluation). This
decision was reached notwithstanding the fact the municipal
evaluation does not take into account the limitations on the right
of ownership under an emphyteusis as opposed to full ownership.
Transfer duties based on consideration paid vs. market
The purchaser of the emphyteutic rights in this case tried to
argue that the emphyteusis was not the object of a separate unit of
assessment by the city and, accordingly, the city could not use the
municipal assessment of the property as a basis for calculating the
transfer duties. The purchaser made reference in its argumentation
to the landmark Quebec Court of Appeal decision in 4053532
Canada Inc. v the City of Longueuil rendered in April of 2013
(the Longueuil Decision).
The Longueuil Decision opened the door to an innovative way of
interpreting An Act respecting duties on transfers of
immovables (the Act) due to the fact that, in such case, the
court concluded that the calculation of transfer duties in the sale
of the land over which there was a right of emphyteusis (as opposed
to the sale of the emphyteuta's rights of emphyteusis) should
not be calculated on the basis of the municipal evaluation, but
rather on the land's market value (more specifically, the
actual consideration) since the land rights did not form part of
the unit of assessment established by the city.
No leeway in interpretation
These arguments were rejected by the trial judge and the Court
of Appeal as the Court of Appeal concluded that the relevant
sections of the Act were unequivocal, but it did acknowledge the
trial judge's comments to the effect that the application of
such legislation could lead to unfair tax assessments.
Practitioners now have the difficult task of explaining to
clients who purchase emphyteutic rights (when there is relatively
little time left in the term of the emphyteusis) that the purchaser
must nonetheless pay transfer duties based on the municipal
evaluation that in no way takes into account the diminishing return
on the property since the right of ownership under an emphyteusis
has a finite term. The court leaves it in the legislature's
hands to make the appropriate amendments to the Act, while
concluding that the Act's current wording is clear and leaves
no room for alternative interpretation.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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