Everything You Need to Know About Personal Real Estate Corporations
Personal Real Estate Corporations
What is a Personal Real Estate Corporation? (PREC)
The Ontario government recently passed the Trust in Real Estate Services Act, 2020, (“TRESA”) which amended the Real Estate and Business Brokers Act, 2002 (“REBBA”). It took effect on October 1, 2020.
The TRESA permits REALTORS© in Ontario to incorporate (or continue) under the Business Corporations Act a company through which their real estate business can be operated.
O.Reg. 536/20 sets out the regulations/rules for a PREC.
What Are the Criteria for a PREC?
The corporation is incorporated or continued under the Business Corporations Act.
All of the equity shares of the corporation are legally and beneficially owned, directly or indirectly, by the controlling shareholder (either a broker or salesperson for him or herself).
The sole director of the corporation is the controlling shareholder.
The president, being the sole officer of the corporation, is the controlling shareholder.
Each non-equity share of the corporation is:
Legally and beneficially owned, directly or indirectly, by the controlling shareholder;
Legally and beneficially owned, directly or indirectly, by a family member of the controlling shareholder; or
Owned legally by one or more individuals, as trustees, in trust for one or more children of the controlling shareholder who are minors, as beneficiaries.
Conditions For Operating a PREC
The PREC’s controlling shareholder is employed by a brokerage to trade real estate;
The PREC does not carry on the business of trading in real estate other than providing the services of its controlling shareholder to the brokerage;
The PREC, its controlling shareholder, non-equity shareholders, its employees or its agents do not represent to the public in any manner, directly or indirectly, that the PREC carries on the business of trading real estate;
.The PREC does not carry on business as a brokerage;
The PREC does not receive, directly or indirectly, remuneration from trading in real estate from any person or entity other than the brokerage;
The controlling shareholder does not receive, directly or indirectly, remuneration for trading in real estate from any person or entity other than the PREC or the brokerage;
The PREC does not, on behalf of the brokerage, directly or indirectly, hold any money or other property of a client, customer or other person in connection with trading in real estate;
There is a written agreement between the PREC, the controlling shareholder and the brokerage governing the relationship between the brokerage and the PREC and its controlling shareholder;
Under the written agreement mentioned above, the PREC agrees not to:
hinder or obstruct the brokerage or its broker of record in the performance of its duties under the REBBA and the Regulations, or
hinder or obstruct the controlling shareholder in the performance of the shareholder’s duties under REBBA and the Regulations.
Under the agreement mentioned in paragraph 8, the PREC agrees to provide whatever assistance may be reasonably necessary to enable the brokerage and its broker of record to comply with their duties under REBBA and regulations and to enable the brokerage and its broker of record to ensure that the controlling shareholder is complying with the shareholder’s duties under REBBA and the regulations;
Under the agreement mentioned in paragraph 8, the PREC agrees to provide whatever assistance is necessary to enable the brokerage to determine whether the conditions set out in Section 3 of TRESA are met.
FREQUENTLY ASKED QUESTIONS
Q: Does a PREC have to be registered with the Real Estate Council of Ontario (RECO)?
A: No. A PREC is exempt from registration under REBBA and is permitted to receive remuneration from a brokerage provided the PREC meets all criteria and satisfies all conditions set out above.
Q: What do I do if I want to set up a PREC?
A: Confirm that your brokerage will agree to the use of a PREC and: (1) ensure the PREC meets the criteria and conditions listed above; (2) ensure there is an agreement between the PREC, the REALTOR© and the brokerage pursuant to the legislation; and (3) provide the legal name of the PREC and its address for service to registration@reco.on.ca
Q: Are there rules on how to name a PREC?
A: Naming of a PREC is a business decision left up to the REALTOR© at the time of incorporating or later on by way of an Amendment to Articles of Incorporation for an existing corporation. In choosing a name, be reminded that in order to remain exempt from registration with RECO, the PREC, its controlling shareholder and other must not represent to the public that the PREC trades in real estate.
Q: Can I use an existing corporation as a PREC?
A: If it meets the criteria and conditions set out above and in the legislation.
Q: Can a holding company own any of the shares of a PREC?
A: The legislation allows for the equity shares of a PREC to be owned by the controlling shareholder either directly or indirectly and non-equity shares owned by a family member directly or non-directly. Whether these shares are owned by a holding company of the controlling shareholder (for equity shares) or a family member (for non-equity shares) is a business decision to be made by the REALTOR© setting up the PREC. Legal and accounting advice should be sought to ensure compliance with the legislation.
Q: Can the PREC hold real estate?
A: Yes, REBBA does not limit holdings of the PREC.
INTERESTED IN INCORPORATING A PREC?
The first step in considering whether to incorporate is to speak with your accountant to determine whether a PREC is right for you. If you and your accountant determine that you should incorporate a PREC, WILSON BRIGNETI offers affordable rates for REALTORS© looking to incorporate a PREC.
If you are ready to incorporate or would like to discuss incorporating a PREC, please contact one of the lawyers at our firm to get started.