Ontario taxpayers can expect an estimated windfall of $400 million from the initial public offering of Teranet Inc., and staff members of Teranet could see $90 million in payouts once the company becomes an income trust next month. But what can real estate lawyers who use the e-reg system expect?
It's still unclear what the fallout may be from the pending sale of the province's electronic land registration system. Premier Dalton McGuinty says the government will still retain complete control over the statutory fees charged for everything from title searches to registering deeds and mortgages, but it's unknown if Teranet will raise its portion of fees.
With Teranet's monopoly on the paperwork that goes with the sale of homes and commercial spaces, real estate lawyers won't have the option to shop around for a better deal.
"Right now, when we register a deed or a mortgage we pay $70.70 ? $60 is a statutory fee, $10 goes to Teranet, and the $0.70 is GST on the Teranet portion," explains Alan Silverstein, a Law Society of Upper Canada bencher and real estate lawyer.
"So the government says it's going to keep its chunk of $60 but I'm not sure to what extent the Teranet fee can be raised with a change in ownership."
Teranet was founded in the early 1990s as a partnership between the province and the private sector. The Harris government sold its 50-per-cent stake to Teramira Holdings in 2003, with a guarantee that half of any additional money Teramira collected would go to the government if it sold the company before August 2006. Teramira, in turn, is headed by Montreal financier Eric Baker and backed by some of the country's largest pension funds and money managers.
It's estimated that the company is worth $2 billion or so, but the government has agreed to contribute $54 million for service improvements.
A spokeswoman for the province has said the $400 million is a conservative estimate but the value will ultimately be determined by the markets.
Finance Minister Dwight Duncan told the press that the revenue will go into general revenues, which will give the Liberals more money for the budget next spring.
The $90-million payout to Teranet insiders comes from the company's decision to wind up its long-term incentive plan before it goes public.
What concerns Silverstein more than a potential fee hike is that many people, including lawyers, have made Teranet what it is today and he wonders if the company will give back to those who helped build it.
"I'll tell you very bluntly. A lot of lawyers, a lot of real estate agents, a lot of appraisers, a lot of municipalities have spent a lot of time over the years working with Teranet, free of charge. Where's the contribution to the community going to be?" he asks.
"Will they give back to the Ontario Bar Association, to the appraisers' group? These are people who gave up their time to help make Teranet what it is today. We didn't want to be paid, but if they're walking away with $90 million, they should give something back to the community that help make the organization what it is today.
"I don't see any of that happening."
Silverstein says, for example, he spent one day a week for the entire summer of 1997 learning the e-reg program so he could provide demonstrations for the LSUC and Teranet for the real estate bar.
"I don't care about my time but show my associations that you appreciate the time they spent," he says.
"I really think it would be nice of them to say, 'Thank you lawyers, thank you agents, thank you municipalities. We know all of your groups are having trouble raising some funds. We're going to give something to you in recognition for your 10 years' worth of contributions to help us.'
"Maybe I'm looking at it from a selfish perspective but they wouldn't be where they are if they didn't get the input from the players involved. I don't know if it's even crossed their minds but it would be a nice gesture.
"If they take the $90 million and run with it, that's being very selfish to those people who basically helped them get to where they are today."
One Toronto real estate lawyer who did not wish to be identified says he is concerned about several aspects of Teranet's IPO and hopes the Law Society of Upper Canada becomes involved.
His concern is that because Teranet may be become more profit-driven, access to the system may become available to a wider range of people, which may, in turn, cause security issues or more instances of mortgage fraud.
A spokeswoman for Teranet tells Law Times that the company is in a "quiet period at the moment" and did not want to comment.