Follow up from Jan 22 webinar for the Law Society of Ontario on the basics of Section 50 of the Planning Act.

On January 22, I conducted a webinar for the Law Society of Ontario seen by over 800 registered lawyers in Ontario on the basics of Section 50 of the Planning Act.  Section 50 affects virtually all dealings with land in Ontario, regulates how land can be divided and contains numerous traps for the unwary lawyer. At issue often is whether two parcels of land are considered a single merged parcel to which the Planning Act applies that would prevent each of the parcels being dealt with separately without a municipal approval. Following the webinar, I received many questions and promised to follow up and answer them. Here are the answers:

Many questions related to how title is taken.  Assume A and B abut and are not whole lots on a plan of subdivision. (I always recommend that you draw a diagram of the parcels to better visualize the problem.)

  1. Smith and Jones own A, Smith alone owns B.  Titles are not merged. They have different powers of disposition.  There are cases on point.
  2. Smith and Jones own A as tenants in common and Smith and Jones own B as joint tenants.  The properties merge.  The manner in which two people hold title is not relevant.  The power of disposition rests with the same two people   There was one very old case (Venta) that said no merger but all of the other cases have said merger.  Venta has been totally dismissed and should be ignored.  It is not consistent with the principles espoused by the courts on meaning of ownership of abutting land.   Do not rely on it.
  3. Mickey and Minnie own A as joint tenants, Mickey alone owns B, and Minnie dies.  The law of survivorship for joint tenants says that immediately on death, Mickey owns A.  There is merger of the two parcels.  What happens on recorded title is not relevant to legal ownership in my opinion.
  4. Following that result, could Mickey deal with B which he  owned in his own name before you correct the title to A by registering a survivorship application.  In my opinion, the answer is no.  Mickey owns the abutting parcel A even though Minnie’s death and Mickey’s ownership by survivorship is not recorded on title.  A lawyer cannot sign the Planning Act statements as the vendor’s lawyer for a sale of B since he or she knows that Minnie died and that Mickey owns the abutting parcel A, even though it is not in his name on the parcel register. And the buyer from Mickey for B will run into problems when he or she sells because an abutting land search will disclose  have the transmission application on A that shows that Minnie died before Mickey sold B.  There will be a requisition that the transfer from Mickey of B was void.  And in my opinion, it is.
  5. Mickey and Minnie are tenants in common of A and Mickey alone owns B; Minnie dies.  Mickey is the estate trustee and sole beneficiary of Minnie’s will.  Estates appear by a decision of the court to be regarded as a separate entity so that A is owned by Mickey and Minnie’s estate as tenants in common and B is owned by Mickey.  There is no merger as long as A is not transferred to Mickey.   See the Fralick case (1981) 21 R.P.R. 281.  But as someone pointed out, that is a Registry Act case and could conflict with my Land Titles theory about the power of disposition residing with Mickey on both parcels.  See below about trusts.

Other questions and answers

  1. If the property is the whole of a lot on a registered plan of subdivision which has not been deemed not a plan of subdivision by bylaw under section 50(4), do you have to search ownership of abutting land.  Technically, the answer is no because the property is on a plan of subdivision (50(3)) and you are not dealing with part of a lot on a plan (50(5)).   But, it never hurts to pull the pin map at least, because you still may not get all of the property on a transfer of the whole lot on the plan.  If there has been a lot addition such as a closed lane at the rear, or some other small parcel of land that is also part of the property, then you may get a valid transfer to the whole lot but you have not captured all of the property.  The PIN map may disclose clues that require some further investigation. As I said at the webinar, that is what happened on the Windsor lane closures.   The two PINs were never consolidated into one PIN representing a single property.   Title was good for the whole lot but the client did not get a transfer of all of the vendor’s property.  It also can happen that a property consists of the whole of two blocks on two different plans of subdivision. This happens when a plan of subdivision is intended to fit into a road pattern with a second subdivision and the two blocks will make up the whole of a property.  You may only get one of them depending on how you search PINs.  Remember, just doing an address search or a name search will not necessarily get you all of the component PINs of a property.   You may get good title to part of the property but you did not get all of it. Get the PIN and look at the PIN map.  Ask your client some questions.   You also need to make sure that there has been no bylaw under section 50(4) to satisfy yourself that you can rely on the exception in 50(3a) that the lot is a lot on a registered plan of subdivision.
  2. A good question about mortgages.  RBC has a valid mortgage on A.  The owner buys part of the adjacent property as a lot addition.  Or in the joint tenancy situation above (Mickey and Minnie own A and Minnie alone owns  B,)  there is a mortgage on A and Minnie dies and Mickey now owns A and B. What happens to the validity of the mortgage on A if the owner buys more land that is not covered by the mortgage. Or in the death case, Mickey now owns A and B and the mortgage is only on A.  Here is the answer.  Once a mortgage is validly created, it cannot be made invalid by the owner acquiring additional abutting land.  Section 50(18) says a lender can enforce a mortgage as long as it is all of the land described in the mortgage assuming that it was a valid mortgage to begin with.    It invites the next question: does the existing mortgage cover the additional land.  No, and so far as I know, you cannot amend a mortgage to add land to it.   The LRO won’t let you do it.  The additional land has to be “charged” and you do that in a charge and not an amending agreement.   You have to put a new mortgage the title to both parcels in order to capture the additional land.  You might do that by simply reregistering the same mortgage but add the additional lands to it.  Most important, don’t put the mortgage just on the newly acquired parcel.  Since your owner owns the abutting land, that mortgage on the lot addition will be void.
  3. Aco and Bco, two corporations own abutting lands A and B.   Same directors, shareholders, etc.  Section 15 of the OBCA says a “corporation has the capacity and the rights, powers and privileges of a natural person.” Two corporations would be the equivalent of two natural persons, i.e. different persons.   It has always been accepted that corporations even if controlled by the same person do not merge the properties. As noted below, the question is what if they are nominees for the same beneficial owner.  Which prevails: the OBCA, the Land Titles Act or investigating to determine who has the power of disposition over the two parcels?  See below with trusts.
  4. Trusts: This continues to be a difficult issue to resolve and despite my Land Titles analysis noted below, there are lawyers who don’t like it.   The question is simple: in a case involving trust ownership, does the registered owner have the power of disposition or does the beneficial owner have the power of disposition and if it is the latter, how do you satisfy yourself as to where the power is.  And how do you reconcile section 68 of the Land Titles Act with the beneficial owner’s power of disposition? No court has ruled on the issue. There are two theories and approaches.

First, section 68 of the Land Titles Act says only the person registered as owner can deal with the property.  Land Titles does not recognize trusts. What if Jones holds A for Mickey and B for Minnie.  Do you look behind the registered ownership to find the beneficial owner and determine if the beneficial owner has the power of disposition. Section 68 says only the registered owner can deal with the property.  That is where the power of disposition is—in the registered owner. There is merger of the titles in Jones regardless of the beneficial ownership.  There is certainty in the power of disposition.  That is the argument.

But what happens if Jones owns A for Mickey and Smith owns B for Mickey. Mickey is the beneficial owner of both properties. Do you have to ask about beneficial ownership?  What if you know about the trust and the common beneficial owner, can you still rely, if you want to, on Section 68.  Many will say no; you cannot take that position if you know that there is common beneficial ownership.

Continuing with the analysis, some say that the trust agreement governs the power of disposition depending on its terms and rely on Captain Developments v. Marshall, a Registry Act case.  In that case, the court held that if the same person is registered as owner of A and B, but in trust for different beneficial owners, there is no merger since the power of disposition is not with the person registered as owner.  They may be right depending on the facts and the terms of the trust agreement.  Too often, especially with unsophisticated owners, there is no trust agreement or the trust agreement does not clearly indicate who has the power to dispose of the property.  Beneficial ownership is not indicated on title and consideration of the power of disposition is made only after title was taken.

Sometimes  in deciding on whether there is compliance or a breach, you may have to first decide if the problem is a planning problem or a Planning Act problem.  Are the lands in fact separate or is it just one large single parcel of land? Especially with developed land, that may be relevant as to which approach you might take. My own view is that I do not want to interpret the trust agreement (many of which are nonexistent or skimpy when title was originally taken) and would give precedence to the Land Titles Act which it is arguable trumps the common law.  But that is my view.  On a sale involving what are clearly two separate properties, signing the Planning Act statements based on Captain Developments may be the easy answer.  It may not be so easy with a mortgage where you cannot have the benefit of the statements.

I have discussed the Land Titles approach with some commercial lender lawyers and they don’t like it.  They worry that the trust issue may come back to bite them with an allegation that a common law trust argument prevails.  A practical approach does not guarantee certainty when someone wants to take a run at the validity of a mortgage.

The reverse fact situation is also a problem that often arises on corporate transactions where abutting land may be owned by different corporate nominees for the same beneficial owner. The Land Titles Act and section 15 of the OBCA may be the easy answer.  But a lender will want to know who the beneficial owners of the property are and get a charge of the beneficial interest.  If there is knowledge that the same beneficial owner owns abutting land through a different nominee, what then?  In the webinar, I said “Don’t ask, don’t tell” but on complex corporate deals, that may not be possible. Lenders want to know what the beneficial owners own.  Under the anti-money laundering legislation, they may be required to have this information. Perhaps the answer is to make sure there is some difference, even a minuscule difference in beneficial ownership to answer the question.  I know it comes up.  Some may advise the client lender of the issue and let the client take the risk.  Do you rely on the Land Titles Act or focus on the identical beneficial ownership.  The transaction may be title insured and then it is up to the title insurer.  Not so easy to resolve when all the clients want to do is close the deal.

Can we have our cake and eat it too?  Here is perhaps some solace for the conflict at least on a purchase.  It may well be that in the appropriate circumstances, a lawyer can rely on the Land Titles Act today to close a deal and on the power of disposition authorities tomorrow to close another deal.  As someone asked, is there a difference between a planning problem and a Planning Act problem.  Often, we have Planning Act problems but no planning problem at all.  If it is a Planning Act problem, and not really a planning problem, maybe we have enough law and analysis to pick the practical of the two approaches in any given situation rather than feel the need to have one right answer. And if you can, sign the Planning Act statements to ensure that good title passes.

  1. Planning Act does not apply to whole units and common interests on a condominium. (section 9(1) of the Condominium Act.
  2. Can you release part of a right of way or easement.  Assume there is a 100 foot right of way that goes up the side of a property for a driveway.  The neighbour only uses the front 60 feet of it.  The neighbour is prepared to release the rear 40 feet of it.  Does the release of the easement by the neighbour while the neighbour owns the abutting property require consent.   In Brankston v. Wright, the court said releasing all of a right of way is not a grant of an interest in land but simply reinstating the full rights of the owner of that land.  Applying that analysis might bring one to conclude that reinstating the rights of the owner in a part of the right of way lands would also not require consent.   See the analysis in my book on this one.
  3. And here is something I thought was obvious.  A is the whole lot on concession 1, B is the whole or a part of lot 2 on concession 1 and they abut.  Can the whole lot be conveyed without Planning Act approval.  No, the statute says the only exception for whole lots is if the land is on a plan of subdivision.  Being a whole concession lot is irrelevant. The two properties abut and a consent is necessary.  As I said, the rules are in the statute.
  4. And once again, it does not matter if a property is the whole of a PIN.  PINs are not relevant at all to the Planning Act. A PIN can be split and PINs can be consolidated.  They are just the way the land registry system catalogues properties.  There is no exception for land that is the whole of a PIN.  Sometimes, committees of adjustment require PINs to be consolidated as a condition of granting a consent as if they think that consolidating a PIN will make it undividable.  The land registry office does not monitor Planning Act. You can split a PIN into as many parcels as you want.  That does not make them conveyable for Planning Act purposes.

Once again, my disclaimer:  The issues raised in this  bulletin are for information purposes only. My comments should not be relied upon to replace specific legal advice. Readers should investigate all matters independently before acting on the basis of material contained herein. I reserve the right to be wrong and to change my mind. Use at your own risk.

Court of Appeal clarifies the application of “to the best of my knowledge and belief” and overturns “Beatty v. Wei “

sunset-2962403_640

In a prior email and at the Real Estate Summit, I discussed the Superior Court decision in Beatty v. Wei.  Many lawyers thought the case was wrongly decided  and did not like its implications in drafting agreements of purchase and sale.   In that case, the sellers “represent and warrant” that during the time that they had owned they property, the property had not been used as a grow op and that “to the best of the Seller’s knowledge and belief,” the property had never been used as a grow op.  The warranty was to survive and not merge on closing.

The sellers had no knowledge that prior owners had used the property as a grow op.  However, between the date of the execution of the agreement of purchase and sale and closing, the buyer discovered and confirmed with police that it had previously been used as a grow op.  The buyer considered the house stigmatized and refused to close.  The buyer sued for the return of the deposit: the sellers sued for breach of contract and damages for losses arising from the reduced price of the house on resale.

The Superior Court concluded that the buyer had the right to terminate because, as at the closing date, the representation was not true and being a representation, the buyer had the right to terminate. The court found that the buyer was induced to purchase the property based on the representation which was now proven not to be true.

The ultimate issue and concern of us real estate lawyers was how the representation was to be treated.  What was it really about?  Was the issue the vendor’s knowledge at the time the representation was made or was it the fact that the property had been used as a grow op.

The Court of Appeal first dealt with more esoteric issues: namely, the extent to which a court of appeal should review a lower court decision on the interpretation of a contract. It then considered the lower court judge’s analysis of the contract terms and concluded that it was in error.  The representation and warranty had to be read as part of the parties’ contract (and not as a precontract representation standing apart from the contract itself).  The Court of Appeal applying standard rules of interpretation finally got to the issue most of us care about.  And this is important and it is precedent setting for the things that we do.

The court held that the effective date of the truth of the representation made to “the best of the seller’s knowledge and belief” was at the time the representation was made and that, without express language that the representation  continued until closing, the representation did not continue if, as in this case, it was discovered that the property had in fact been used as a grow op at some prior time but that that fact was unknown to the seller.  The emphasis to be placed on the representation is the knowledge of the seller when the representation was given and not on whether the property had been used as a grow op.   The representation given was limited to the seller’s knowledge at the time it was given and was not absolute. The caveat of course is that the sellers had no knowledge of the prior use. Liability might well attach if the sellers knew about a major latent defect and concealed it but here, the sellers were absolutely unaware of the prior use.

In formulating its analysis, the court distinguished provisions in an agreement of purchase and sale that apply only to the date of the agreement of purchase and sale and those applying as at the date of closing.  Many commercial agreements provide that representations and warranties have to be true when made and at the date of closing.  The court in deciding how to interpret the subject clause considered other provisions in the agreement of purchase and sale that clearly apply up to the date of closing i.e. the residency of the vendor and the removal of work orders on or before closing.   If the buyer wanted the representation to apply up to the date of closing, the agreement of purchase and sale should have said so.

But this clause had no such language and as a result applied only as of the date of the execution of the agreement of purchase and sale.

We rely frequently on “to the best of my knowledge and belief” in our agreements and it is perhaps nice to know that, without language that makes the knowledge apply up to the date of closing, the time of effectiveness and application of the knowledge is limited in time to the date that it is given.  The court also confirmed that the provision that the representation survives closing does not change its nature or application.  As long as the vendor did not know on the date the agreement of purchase and sale was signed, subsequently learned contrary information does not set up rights in the buyer to terminate the agreement.

Lessons?

  1. The court did not answer this question alluded to in the reasons: if the seller (not the buyer) discovered the prior use after the agreement of purchase and sale was signed, was there a duty to disclose it, even if the contract would not be terminated.
  2. Language is critical in the drafting of an agreement of purchase and sale.  Make sure you are clear on your expectations and that of the client. It was an agent’s clause here but we lawyers review such clauses regularly and must ensure that we are clear ourselves on what the contractual terms mean and what are clients want to give and to get.
  3. The two different results once again confirm to me that we lawyers cannot guarantee clients’ rights based on what we may perceive may be the prevailing law based on case law.  Especially when advising whether a client has the right to terminate or is obligated to close, we lawyers must ensure that we do not express absolutely what the parties’ rights are since our courts are not predictable on results.   And make sure you document your advice in writing so that no one can then claim that “you told me I did not have to close.”  That is an invitation to a lawsuit.
  4. The court of appeal got it right, in my view, in the context by which certainly residential agreements of purchase and sale are drafted and what the parties actually expect. A representation is not absolute if qualified by knowledge and belief and the timing that the representation is given is critical to the parties’ expectations.

The decision can be found at http://www.ontariocourts.ca/decisions/2018/2018ONCA0479.pdf

My disclaimer: The issues raised in this bulletin are for information purposes only. My comments should not be relied upon to replace specific legal advice. Readers should investigate all matters independently before acting on the basis of material contained herein. I reserve the right to be wrong and to change my mind. Use at your own risk.

15th Annual Real Estate Law Summit

I had the honour of once again chairing the now 15th annual Real Estate Law Summit.  For those who did not see it, there will be replays.  After 15 years of Summits, and many more years in practice, I have learned that there is still lots to learn.  These were some of the things I either learned or learned again:

  1. There is a Land Titles Registration Guide on line which I found in the new Teraview under the “settings” icon (it looks like a little gear) under Web Services under Electronic Registration Guidelines. I had to see something about consolidating parcels and it actually helped. Who knew?
  2. Words matter. Simon Crawford clarified the importance of using certain words in indemnities and what the result is that might make you rethink using phrases such as “save harmless” and “not merge on closing” without a time limitation. He spoke specifically about the indemnity in common documents like assignment and assumption of leases and do we really appreciate what liabilities we are signing our clients up for with documents we think are just “standard”. He taught me the phrase “mots juste” (which I believe is French) for the “right words” and how important it is to use the right words instead of any or all words that we tend to throw into agreements.
  3. We talked about Beattie v. Wei, a recent decision and how again, saying “represent and warrant” in an agreement may result in a purchaser’s remedies exceeding the reasonable expectation of the vendor. Representations, innocently made, give rise to a right to terminate. “Warrant” gives rise to a claim in damages but the deal has to close. Once again, mots juste. Your vendor may not want to “represent” if it turns out not to be correct. In Beattie, a representation made “to the best of my knowledge and belief” only made what turned out to be a misrepresentation innocent. It did not eliminate the right of the purchaser to terminate.
  4. Audrey Loeb reminded me once again about the risks of buying a new condominium. And even worse, acting on a purchase of one. How to limit your obligations about advising about disclosure statement; new proposed amendments regarding disclosure, shared facilities agreements for facilities that do not exist; the right of a condominium to restrict smoking, pets, condominium control of unit renovations, etc. all are issues of concern.
  5. There is a whole new Construction Lien Act coming. Among other things, a lien claimant who has done work on common elements has to give notice to each unit owner of the claim for lien instead of just registering it and a unit owner can bond off the lien as it relates to his or her unit (probably unrealistically costly but it is there). The right of a lien claimant to claim against the owner for work done for a tenant is now clarified and for landlords made more onerous.
  6. Doing real estate deals in the north (like north of North Bay and south too) is a different animal since they have unorganized townships, surface and mining rights, title called “summer resort location” that has nothing to do with summer or resort, road boards, unusual crown patent reservations, and in some cases, very complicated thumbnail legal descriptions.
  7. The Financial Services Commission of Ontario (FSCO) is piggybacking on the Mortgage Brokers, Lenders and Administrators Act by imposing further requirements on lending on “non-qualified syndicated mortgages”. If you don’t think you act on syndicated mortgages, think again. Lenders or investors in loans can include family members and there will be almost a “means test” to ensure that the lender/investor is able to accept the risk of loss. It all goes into effect July, 2018 and hopefully, the Law Society will have some CLE on the topic soon.
  8. Jeffrey Lem, the Director of Titles is committed to publishing a host of Bulletins to help keep the system running smoothly. Watch for them.
  9. I knew all about 3 way DRA’s (document registration agreements to facilitate the registration of a private discharge at closing. I have even prepared 4 and 5 way DRA’s to deal with a sale and purchase, the registration of a private discharge, a separately represented lender and even a second mortgagee. But I do not understand why some lawyers don’t want to use them since it makes everyone’s life easier and protected and keeps costs down.
  10. My opinion that it is hard to be a residential landlord in Ontario was confirmed by Joe Hoffer’s discussion about changes to the Residential Tenancies Act, above guideline increases, evictions for renovations, etc.

And that is just scratching the surface. Our practice is a breeding ground for claims against lawyers simply arising from not keeping up to date on changes to the law and practice and the judicial decisions that affect us.

My disclaimer: The issues raised in this bulletin are for information purposes only. My comments should not be relied upon to replace specific legal advice. Readers should investigate all matters independently before acting on the basis of material contained herein. I reserve the right to be wrong and to change my mind. Use at your own risk.

Drafting minutes of settlement in mediations involving claims to land

horizon-2969357_640

Mediations often involve claims by the parties to interests in land, whether by ownership, adverse possession, prescriptive rights, mortgages or easements.  Often the minutes of settlement will involve a consent to an order declaring such rights and requiring that such rights be recorded on registered title.

Arbitrators and mediators need to be aware that the Land Registry Office will honour all court orders, provided that the land registry staff are in a position to clearly understand and implement the court order.

For example, in order for the Land Registry Office staff to understand and implement the court order, the order itself cannot refer to the pleadings – the Land Registry Office staff will not review the pleadings.

The order must refer to the property by the PIN (Property Identifier Number).

To the extent that the order addresses a specific instrument on title, it must refer to the instrument by registration number.

The order should read like instructions on how to amend the PIN – expressly set forth the specific fields of each PIN that need to be amended and then specify exactly how.

It is important to specify what happens with other encumbrances shown on the PIN, especially when vesting title.  The order must direct what to do with existing instruments existing on the PIN (e.g. “delete the charge given by SMITH, JOHN to ABC BANK OF CANADA registered as Instrument No. xxxxx).  If the ORDER does not specify that an encumbrance is to be deleted, then it will remain an encumbrance on the PIN.

When the order deals with only part of a PIN (e.g. an easement over a part of the property in favour of a neighbour), then the part must itself bear a registrable legal description.  A sketch or a non-legal description will not be accepted for registration.

It is always prudent to have the land registry office pre-approve any order dealing with a change to the title to ensure that they will act on it.  Otherwise, the order may have to be amended after the fact so that the land registry office will act on it.   A knowledgeable experienced real estate mediator or arbitrator can always assist in the finalization of minutes of settlement and draft orders.

Acting for Husbands and Wives

 water-2946064_640

Do you act for husbands and wives buying a house together, giving a mortgage together, or preparing family wills?  Of course you do.  Who doesn’t?

If you do, just remember the joint retainer rules.  Even though the clients are married to each other and doing little more than buying a house or doing mutual wills leaving everything to the other with a gift over to their children, rule 2.04(6) considers that the lawyer has a joint retainer i.e. two clients which means that the lawyer must advise the clients that:

  • the lawyer has been asked to act for both of them;
  • no information received in connection with the matter from one can be treated as confidential so far as the other is concerned; and
  • if a conflict develops that cannot be resolved, the lawyer cannot continue to act and may have to withdraw.

Subrule 2.04(8) requires that, after so advising the clients, the lawyer obtains both clients’ consent.

The rule also includes special commentary when acting for spouses making wills about advice to clients should they want to retain the lawyer to change their wills in the future and the duty of disclosure and the possible inability to act.  Check out the rule on the Law Society website.  And make sure you have the signed document of consent in your file.   The Law Society auditors will be looking for it.

While many lawyers might consider the rule odd, especially in the context of a simple residential purchase or will, it is a rule that requires understanding and compliance.

Using Joint Tenancies to Avoid Probate

home2

We all have done it.  Put title in joint tenancy so that if one spouse dies, the property goes to the survivor without the need for probate.

We may do it with ailing parents.  Mom died, Dad is getting older and living in the house so you have him transfer an interest to a child or children for natural love and affection so title is Dad and child or children as joint tenants.  Presumably, you make sure that if there are several children, you avoid the exclusive gift problem and all the children are on side as to who actually gets the house or the sale proceeds when Dad dies.

Can you do it if Mom has Alzheimers or is in a nursing home and is incapacitated?  Dad owns the house having used a power of attorney to get title out of Mom’s name and now wants to estate plan so that when he dies, the house goes to the kids without probate.  When Dad dies, do the surviving joint tenant children take?  Not so fast.

Section 26. (1) of the Family Law Act says that “If a spouse dies owning an interest in a matrimonial home as a joint tenant with a third person and not with the other spouse, the joint tenancy shall be deemed to have been severed immediately before the time of death.”  That means the children get their interest but Dad’s interest passes by his will so that Mom’s family law rights can be protected.  The children do not take by right of survivorship.  Probate might be required.  And you may need to ensure that you have powers of attorney for Mom in place as well.  Nothing is easy.  Watch out for it as an obstacle to a simple solution.