The signing of a counter letter

A counter letter, also known as a “nominee agreement,” is a secret contract in which the signatories express their true intent, which differs from the apparent contract signed between them. This possibility is provided for under Article 1451 of the Civil Code of Québec, which recognizes the legal concept of simulation, where parties agree to express their real intent in a hidden contract rather than the public one. In real estate, this occurs when parties sign an agreement that differs from the published deed of sale in the land registry. For example, buyers may agree on ownership shares that differ from those stated in the official purchase deed.

If the counter letter complies with legal provisions, it is valid between the parties. However, it’s important to note that during the sale of the property, the notary will distribute funds according to the published deed. It is then the responsibility of the parties of the counter letter to enforce it and divide the funds themselves, if necessary.

Additionally, the existence of a counter letter must be disclosed to tax authorities within 90 days of its signing by submitting the prescribed forms. Failure to do so may result in penalties.

If the counter letter is signed after the acquisition of the property, it must also be disclosed to the municipality, as property transfer duties (taxes) apply not only at the time of transfer but also at the time of signing the counter letter, as per the Act Respecting Duties on Transfers of Immovables. However, if the counter letter is signed before the transfer, duties are only payable at the time of the transfer. This distinction is crucial: failure to disclose a counter letter signed after acquisition may lead to penalties of up to 150 per cent of the transfer duties.

Therefore, if you intend to sign a counter letter, make sure to comply with applicable laws and disclose it to the tax authorities (and municipal authorities, if applicable) to avoid serious consequences.

This article was written in collaboration with Mtre Sarah-Maude Le Corre, notary and partner at Blanchard Lupien Notaires LLP.