A REIT through an subsidiary trust is the limited partner of a partnership that directly and indirectly owns and leases real property, and whose general partner is controlled by the REIT. Previous owners of various of those properties hold LP units of the partnership that participate in its profits based on distributions made by the REIT on its units, and are exchangeable into REIT units. As a condition to obtaining financing for a property to be developed jointly by the partnership and a third party ("X Corporation"), the REIT, its subsidiary trust, X Corporation and one or more members of the X Corporation group are required to guarantee the mortgage obligations issued to Lender in the name of the nominee corporation for the development property. Furthermore, Lender will receive insurance in respect of the mortgages from a third party insurer (therefore facilitating a lower interest rate on those mortgages) provided that the REIT provides such guarantee. No guarantee fee will be charged by the REIT.
In the summary of Reasons, the Directorate states that "it is reasonable to conclude...that the degree of integration between the investment of the funds and the guarantee is sufficiently high that the guarantee will not be considered to be a separate undertaking." It rules that the provision by the REIT of the guarantee will not by itself cause the REIT to not qualify under s. 132(6)(b).