Each direct-hold solution is constituted as a legally separate limited partnership holding a single commercial asset. The separation is not a contractual arrangement within a single entity — it is a structural consequence of separate legal personhood: each LP is a distinct legal entity with its own creditors, its own equity register, and its own balance sheet. An obligation incurred at one asset vehicle does not become an obligation of any other asset vehicle, regardless of common beneficial ownership at a higher level in the corporate structure. This isolation is the primary mechanism by which the direct-hold framework protects unit holders from cross-asset contagion.

Key takeaways

• Each direct-hold solution holds a single asset in a separate legal entity; the creditors of that entity — mortgage lenders, trade creditors, counterparties — have no recourse to the assets of any other direct-hold LP in the holding structure.
• The general partner's fiduciary obligations run separately to the limited partners of each LP; no management decision made at one LP vehicle can bind or obligate a separate LP.
• For lenders providing commercial mortgage financing to a direct-hold LP, the loan is secured against the specific property in that LP, and the lender's recourse on default is limited to that property and any other collateral specifically pledged — not to the broader portfolio.

Legal separation

A limited partnership in Canada is a legal entity distinct from its partners. The LP can own property, incur debt, enter contracts, and be a party to litigation in its own name. This legal personhood means the assets of the LP belong to the LP, not to its partners — and conversely, the creditors of the LP have recourse to the LP's assets, not to the personal assets of the limited partners (whose liability is capped at their invested capital) or to the assets of other LPs that share the same general partner or beneficial owner.

The direct-hold structure exploits this separation deliberately. By holding each asset in a separate LP, the default of any single asset — a lender calling a loan, a judgment creditor obtaining a charge — is contained within the LP holding that asset. The remaining assets in the portfolio are unaffected because they are held in separate legal entities.

Mortgage financing and structural subordination

Commercial mortgages on direct-hold assets are secured against the specific property held in the relevant LP. The mortgage lender has a first charge on the property and the LP's other assets; it does not have recourse to properties held in other LPs, to equity held at the parent company level, or to cash held in the portfolios of other investors.

Non-recourse or limited-recourse mortgage structures — common in institutional commercial real estate lending — formalise this limitation: the lender explicitly agrees that its recourse on default is limited to the property itself, and the general partner provides no personal guarantee. In limited-recourse structures, the general partner may provide limited "carve-out" guarantees for specific bad-act events (fraud, intentional misrepresentation, environmental liability), which remain separate from the property-level exposure.

Income tax isolation

Because each LP is a separate entity for income tax purposes, the income and losses of each partnership are computed separately. A loss in one LP cannot be used to offset income in a different LP at the entity level; such losses flow through to the partners and are available to offset income from the same partnership or other sources, subject to the at-risk rules and other provisions of the Income Tax Act applicable to limited partners.

This separation prevents a cross-subsidisation of tax positions between assets: each LP's tax position is determined by the operating results of its own asset.

Unit register isolation

The unit register — the authoritative record of who holds equity in each direct-hold solution — is maintained separately for each LP. An investor's ownership in LP A does not appear on the register of LP B, even if the investor holds units in both vehicles. This register isolation means that an encumbrance against one investor's LP A units cannot affect their holding in LP B through the equity record.

Parent company observation rights

The parent holding company — as the ultimate beneficial owner of the general partner — has observation rights and can receive consolidated information about all asset vehicles through normal holding company governance. The parent does not, however, hold the individual assets on its own balance sheet: its interest in each LP is an investment accounted for at fair value through profit or loss under the investment entity exception of IFRS 10.27. The financial statements of the parent and the financial statements of each direct-hold LP are separate documents with separate audits and separate SEDAR+ filings.

See also

• limited-partnership-structure — the LP legal form that implements the isolation
• distribution-declaration-mechanics — how the per-asset isolation is preserved in the distribution declaration process