First Dealings Exemption in Ontario Real Estate: Does a Spousal Transfer After PIN Creation Disqualify It?

When buying, selling, or transferring property in Ontario, lawyers often deal with a unique legal concept called the First Dealings Exemption. This exemption can have a major impact on real estate closings and, later, on whether an estate requires probate when the property owner passes away. Because the rules are technical, debates sometimes arise—even between experienced lawyers—about what counts as a “first dealing” and what does not.

In this blog, we’ll look closely at a real scenario: two owners bought a home in 1987, the property was converted to Land Titles Conversion Qualified (LTCQ) in 2003, and then in 2004 one spouse transferred their share to the other after separation. The question is whether this transfer cancels the First Dealings Exemption or whether the exemption still applies.

What is the First Dealings Exemption?

To understand the debate, we first need to know what the First Dealings Exemption actually means.

For decades, Ontario real estate was governed by two different land registration systems: the Registry System and the Land Titles System. Many properties originally fell under Registry, which was more cumbersome and less certain. Beginning in the late 20th century, the government moved most properties into the Land Titles system through a process called “administrative conversion.” When a property is converted from Registry into Land Titles, it is often marked as LTCQ (Land Titles Conversion Qualified) on title.

Now, here’s the important part: to encourage smooth conversion, the government created the First Dealings Exemption. If a property was converted into Land Titles and there has been no transfer of ownership since conversion, then the first transfer after the owner’s death may be registered without probate. In other words, the estate may avoid the time and cost of obtaining a Certificate of Appointment of Estate Trustee (commonly called “probate”). This can save thousands of dollars in probate tax and several months of delay in a real estate closing.

Why the Exemption Matters in Real Estate Closings

From a practical standpoint, the First Dealings Exemption can make the difference between a smooth closing and a major delay. Imagine you are buying a home from an estate. If the exemption applies, the executor may be able to transfer the property directly on the strength of the will, without needing probate. If the exemption does not apply, then probate becomes mandatory, adding costs and pushing the closing back by months.

For lenders and purchasers, knowing whether the exemption applies also affects risk. A buyer does not want to close only to discover that the transfer is invalid because probate was required. This is why real estate lawyers always check whether the property qualifies for the exemption.

The Scenario: Purchase, Conversion, and Transfer

• In 1987, A and B bought the property together.
• In 2003, the property was administratively converted to Land Titles Conversion Qualified (LTCQ) and a PIN was created.
• In 2004, A and B separated, and B transferred B’s half-interest in the property to A.

Now the question is: did the 2004 transfer terminate the First Dealings Exemption?

One lawyer argues yes, because after the PIN was created, there was a change in ownership (half of the equity moved from B to A). The other lawyer argues no, because the transfer was between spouses upon separation, and under the rules, such transfers do not count as “first dealings.”

What Counts as a “First Dealing”?

According to Ontario’s Land Titles Act and the electronic registration practice guides used by Land Registry Offices (LROs), the following principles apply:

• A transfer of ownership after conversion to Land Titles normally ends the exemption. If A sells to C, or A and B transfer to D, that is clearly a first dealing.
• Mortgages, leases, easements, and most charges do not end the exemption. These are not “dealings” in this sense.
• “Self-to-self” transfers, such as changing title from joint tenancy to tenants-in-common, or vice versa, do not terminate the exemption.
• Importantly, inter-spousal transfers in certain circumstances—such as transfers between spouses upon marriage breakdown—are treated as exceptions and are not considered first dealings.

These rules are codified in practice materials such as the Teraview Electronic Registration Procedures Guide and have been confirmed in continuing professional development (CPD) programs for real estate lawyers.

Applying the Rules to the 2004 Transfer

At first glance, it might seem obvious that when B transferred their 50% share to A, that was a transfer of ownership after the PIN was created, and therefore the exemption would be lost. That is why some lawyers argue the First Dealings Exemption no longer applies.

However, Ontario’s land registration practice provides for exceptions. Transfers between spouses (whether for estate planning, separation, or equalization of property) are specifically carved out. The reasoning is that these are not truly “arm’s-length” transactions; rather, they are adjustments within a family unit. The policy is designed to protect families and to avoid penalizing them when reorganizing ownership between spouses.

Therefore, in this scenario, the 2004 transfer from B to A following separation would not end the exemption. The property would still be considered to have had no “dealing” since conversion, and A’s estate could rely on the First Dealings Exemption when A eventually passes away.

Why the Debate Happens

So why do lawyers disagree on this? The confusion comes from the narrow wording of the rules. Many practitioners remember the general principle—“any transfer of ownership after conversion ends the exemption”—but forget that the practice guides carve out exceptions for spousal transfers and self-to-self transfers. Without knowing those exceptions, a lawyer might assume that transferring 50% of the property is fatal to the exemption.

Another source of confusion is equity. Some argue that since “half the equity” changed hands, it should count as a dealing. But the exemption is not about percentages of equity—it is about whether the transfer falls within one of the exempt categories. A spousal separation transfer is an exempt category, regardless of how much equity is involved.

Implications for Families and Closings

For families, this interpretation is very important. Imagine a separated spouse who stayed in the family home for decades after receiving full title. When that spouse dies, the estate may still be able to sell or transfer the property without probate, saving thousands of dollars and months of delay. Without the exemption, the estate might need to wait for probate before closing a sale, risking the loss of buyers or higher legal costs.

For lawyers handling real estate closings, knowing these rules is essential. If a lawyer incorrectly assumes that a spousal transfer ended the exemption, they may insist on probate when it is not required, adding unnecessary expense for the client. On the other hand, if a lawyer wrongly claims the exemption applies when it does not, the buyer could face a defective title. That is why clarity on these rules matters.

How a Real Estate Law Firm Can Help

• Review the chain of title to confirm whether the First Dealings Exemption applies.
• Identify whether past transfers were “dealings” or whether they fall into an exempt category like a spousal transfer.
• Communicate with the Land Registry Office to confirm practice expectations and ensure the exemption will be honoured.
• Advise executors on whether they can transfer property without probate or whether probate is required.
• Protect buyers and lenders by ensuring title is clean and marketable.

By understanding both the letter of the law and the LRO’s practice, a real estate lawyer ensures smooth closings and protects clients from unnecessary costs and risks.

Final Takeaway

In the scenario presented—A and B buy in 1987, property converted to LTCQ in 2003, and in 2004 B transfers to A upon separation—the First Dealings Exemption still applies. The 2004 transfer is an inter-spousal transfer upon separation and does not count as a “first dealing.” The property is still eligible for the exemption, meaning A’s estate can later transfer the property without probate.

This illustrates why real estate law in Ontario can be so complex: rules that look black-and-white often have exceptions that make a huge difference in practice. For families, it can mean saving thousands in probate tax. For lawyers, it can mean the difference between a smooth closing and a dispute with the Land Registry Office. And for buyers and lenders, it provides certainty that title is valid.

Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or real estate advice. Laws and procedures can vary. You should consult with qualified professionals (e.g., a real estate lawyer, mortgage broker, real estate agent) for advice on your specific situation. No professional-client relationship is created by reading this content.