Bare Trusts and Multifamily Rental Housing
What is a bare trust? A bare trust is a legal structure that facilitates the division of the beneficial and legal ownership. Typically a bare trust is the use of a company to hold the legal or registered title to property as nominee, in trust for the “real” or beneficial owner of the property.
The beneficial owner as the “real owner” of the property is entitled to receive all revenue from the property and is the decision maker with respect to all aspects of the property. The beneficial owner determines the rents charged, the terms of any leases or tenancy agreements, who to hire as property manager, who to finance the property with and when to sell the property. The bare trustee typically has no significant powers or responsibilities as the beneficial owner continues to have complete control over the property. The bare trustee can only act, and must act, at the direction of the beneficial owner.
The legal relationship between the bare trustee and the beneficial owner is set out in a bare trust agreement. The bare trust agreement is invariably not registered in the Land Title Office. The beneficial owner typically owns all of the shares in the bare trustee company.
To maintain ultimate flexibility, the bare trustee company must be a single purpose company created to hold the legal title for the specific property and has no other history, assets or liabilities. The bare trustee company should not own more than one property with a different company used for each property. When first purchasing a property, it is advisable to use a bare trustee structure even if the buyer does not need the bare trust arrangement because it allows for flexibility in the future.
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