Title representations and warranties

How BC law treats it

In a share purchase agreement, the seller typically represents that it is the registered and beneficial owner of the shares, that they are free of liens, options and other claims, and that it has the power to sell them. The buyer checks the company's central securities register, which every BC company must keep under the Business Corporations Act (BCBCA), and its minute book. In an asset purchase, the seller warrants good title to the assets, and the buyer searches the Personal Property Registry under the Personal Property Security Act for registered security interests. For goods, the Sale of Goods Act implies a condition that the seller has the right to sell and a warranty that the goods are free of undisclosed charges. In business deals these implied terms are usually supplemented or replaced by express warranties in the purchase agreement. Because title warranties go to the core of what is being bought, purchase agreements usually call them fundamental representations. They commonly survive closing for longer than general warranties, sometimes until the limitation period expires, and are often excluded from the deductible and capped only at the purchase price. Land is different: BC uses the Torrens system, and under section 23 of the Land Title Act the registered owner's title is indefeasible, subject to stated exceptions. Buyers and lenders rely on a title search, registration and sometimes title insurance, not on US style warranty deeds.

What it means for your business

If a seller turns out not to own what it sold, the buyer's main remedy is a claim under the title warranties and indemnity. Weak drafting, a short survival period or a low cap can leave the buyer without recovery. Buyers should search registers before closing rather than relying on the warranty alone, and consider a holdback or escrow where title is doubtful. Sellers should disclose any known liens in a schedule. Example: A buyer acquires all the shares of a Richmond distribution company, then learns that a former partner holds an unregistered option over 10 percent of the shares. Because the seller gave a fundamental title warranty that survives for six years with a cap equal to the purchase price, the buyer can recover its loss from the seller.

Risks and common mistakes

Relying on a seller's title warranty without searching the central securities register, minute book and Personal Property Registry. Letting title warranties expire with general warranties after 12 or 18 months. Applying the general indemnity cap and deductible to title claims. Expecting a US style warranty deed in a BC land purchase instead of checking registered title. Failing to schedule known liens that will be discharged on closing.