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Article by Stephen Pincus and Allan Goodman
On May 22, 2003, the Ontario Government introduced Bill 41. Schedule L of Bill 41 is the Trust Beneficiaries’ Liability Act, 2003, which will protect unitholders of publicly traded trusts by affording them the same protection against personal liability as shareholders of a corporation.
Partners of Goodmans LLP worked closely with the Canadian Institute of Public and Private Real Estate Companies ("CIPPREC") over recent months to spearhead this initiative and assist in drafting this legislation to confirm that unitholders of real estate investment trusts ("REITs") and other income trusts are not personally liable for the activities or obligations of the trusts or their trustees.
The adoption of this legislation will ensure that the exposure of unitholders to claims against trusts will be limited to the amount of their investment in the trust, removing any uncertainty for business trust investors. With this concern addressed, it is expected that publicly traded trusts will soon be included in the S&P/TSX Composite Index. This is expected to enhance demand and liquidity for REITs and other income trust units.
The Trust Beneficiaries’ Liability Act, 2003 will apply to any trust that is a "reporting issuer" within the meaning of the Securities Act (Ontario) and whose trust instrument is governed by Ontario law. As the legislation is drafted, protection for beneficiaries will extend to acts or defaults that arise after the date that the Act comes into force. The legislation will come into force on the day that The Right Choices Act (Budget Measures), 2003 receives Royal Assent.
Goodmans has been a pioneer in the REIT and income trust sector, playing a key role in structuring and implementing numerous income trusts, including Canada's first REIT IPO, Canada's first REIT to own an operating business and Canada's first cross-border REITs and income trusts. CIPPREC recently appointed Goodmans as the exclusive author of The Canadian REIT Handbook.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.