Branded residences are no longer a niche concept reserved for global luxury hubs — they are rapidly gaining ground in Ontario’s evolving real estate landscape. For developers, these projects promise premium pricing and faster absorption rates. For hotel brands, they open doors to a wider and more diverse market and new revenue streams. And for consumers, they offer exclusive access to a luxury lifestyle. But behind the glossy marketing lies a complex legal framework that, if overlooked, can expose all parties to significant financial and reputational risk.
This two-part series explores the top six legal and structural considerations that hotel companies and developers must address when bringing a branded residence to market in Ontario. Whether you are structuring your first project or expanding your portfolio, understanding these foundational elements is key to ensuring compliance, brand integrity, and long-term success.
1. Project structure
When considering participation in the branded residences market, there are several potential project structures to explore including, but not limited to, the following:
- Single Building Mixed-Use Developments
- Horizontal Mixed-Use Developments
- Stand-Alone Residences
A condominium corporation is often the preferred legal structure to create and sell branded residences. Typically, the condominium corporation is developed in conjunction with a traditional (typically freehold) hotel, but that is not always the case. Some branded residences may be created through apartments, standalone freehold residences, fractional or timeshare interests or homeowners associations that are not governed under and subject to, at least in Ontario, the requirements of the Condominium Act, 1998.
The focus of this two-part article will be a branded residence created as a condominium corporation and developed in conjunction with a freehold hotel. For these projects, consumers will have an ownership right in their residential unit and a right to use many of the amenities and services offered by the adjoining hotel.
2. Governing documents
Project governing documents and residential sales and marketing agreements must be drafted to get any project off the ground. These documents (again, assuming a condominium corporation is part of the project) will include a declaration, by-laws, rules, cost-sharing agreements, access and maintenance agreements, plans, and budgets, all of which can be drafted to align with the brand’s standards. While the developer will be tasked with drafting these documents, hotel companies will surely modify such documents.
Part of this process involves the review of any zoning requirements regarding the use of units for short-term stays. The City of Toronto and many other municipalities in Ontario have restricted the use of condominium units for short-term stays so hotel companies must be mindful of such requirements when reviewing not only the declaration and rules of the condominium corporation but also the sale and marketing materials (as discussed further below).
It is not atypical to scrub the brand name from the governing documents because nothing lasts forever (i.e. the Hotel Management Agreement or Residential Management Agreement may be terminated), but it is essential for all parties to remain mindful of brand requirements throughout the documentation process to ensure a cohesive and legally sound development.
Residents of the condominium corporation are typically provided the right to use hotel amenities such as the exercise room, pool or sauna for a fee. Developers will include obligations in the governing documents, which mandate unit owners to remit an amenity fee on a monthly basis to the condominium corporation.
The amenity fee is often a key consideration which connects the condominium corporation to the hotel. In turn, condominium corporations are typically contractually obligated by way of the shared facilities agreement to collect this fee from unit owners and remit this fee to the hotel company or hotel owner. If unit owners fail to remit the amenity fee to the condominium corporation, the declaration must clearly provide that such fees form part of the common expenses of the unit to authorize (and obligate) condominium corporations to lien such units. This is one example of many unique considerations that must be taken into account during the preparation of governing documents for this type of branded residence in Ontario.
3. Residential Sales and Marketing Licence Agreement
The Residential Sales and Marketing Licence Agreement is a cornerstone agreement, which grants the developer the right to use the brand’s name and trademarks in the marketing and sales of residential units. The licence is typically limited and for a finite period of time. In exchange, the brand or hotel company may receive a percentage, typically between 1% and 6%, of the gross sales price of each residential unit. A brand commitment fee or access fee is often remitted to the hotel company upon execution or prior to sales and credited against the licence fee.
This agreement often includes a provision requiring the hotel company’s approval of all governing documents, as well as marketing and sales materials. This ensures that the development adheres to brand guidelines and maintains the integrity of the luxury brand throughout the process.
Since most developers in Ontario are single purpose entities, hotel companies must require an indemnity from the parent entity to guaranty the obligations of the developer.
Specific reference must be made to the Condominium Act, 1998 and the regulations thereunder during the sales and marketing phase. However, when drafting residential sales agreements and marketing materials, hotel companies and developers must also be aware of potential risks, particularly in relation to the Ontario Securities Commission (the “OSC”).
If sales and marketing materials include information about a rental program, then this could be viewed as an investment contract and separate requirements under Ontairo’s Securities Act may be triggered.
Even if the developer seeks and the OSC grants an exemption from filing a prospectus, negligent misrepresentations pertaining to a rental program’s benefits will pose risks. Notably, Singh v. Trump, 2016 ONCA 747 (“Singh Case”) provides valuable guidance on the marketing of a rental program in Ontario. In the Singh Case, the developer was granted an exemption from filing a prospectus on the condition that it refrained from marketing the economic benefits of the rental program. When the developer failed to comply, and unit owners did not realize the benefits marketed, risks and liability presented themselves under the Condominium Act, 1998 and the Securities Act irrespective of any entire agreement clause in the Agreement of Purchase and Sale. While the hotel company was not exposed to liability, the Singh Case is an important reminder of the need to properly vet marketing materials.
While the above considerations and agreements are essential for the development of branded residences, several other considerations and agreements are also fundamental including the Technical Services Agreement and Pre-Opening Agreement, Residential Management Agreement, and Shared Facilities Agreement. We will discuss these agreements and more in Part 2.
To learn more about how we can support your branded residence initiative, we invite you to contact a member of Miller Thomson’s Condominium & Strata Group.
