The Importance of Abutting Land Searches in the Land Titles System

Post by: Carly Haynes

There are two systems of land registration in Ontario, Land Titles and Land Registry. Historically, land in Ontario was registered only under the Land Registry System pursuant to the Registry Act. In this System all land registration documents are submitted to the Land Registrar and are recorded, in the order they are submitted, on the abstract for the geographic area they affect within a Land Registry Office (“LRO”).  Under this System, the documents are registered on title, but the provincial government does not guarantee the effect of such documents or title to properties.  Consequently, in under to satisfy oneself of title under the Registry System, land registration documents must be searched 40 years into the past in order to assess the validity of title.

In the Land Titles System the provincial government has the responsibility for the validity and security of all instruments registered on title. The vast majority of land in Ontario has been converted to the Land Titles Automated System. Title registered and certified under the Land Titles System is guaranteed by the provincial government, and the record is updated each time a land registration document is registered.

Following a recent trend of case law, it has become clear that despite the fshutterstock_73408681act that the provincial government guarantees title of land registered under the Land Titles System, land owners may still be held responsible for administrative errors where said errors were reasonably discoverable.  This highlights the importance of undertaking abutting land searches and title searches, regardless of the acquisition of title insurance.  This raises the questions as to whether title can ever really be absolute.

In 923424 Ontario Limited v 1695850 Ontario Inc. Justice Perell found that a landowner cannot rely on the lack of express notice of a right of way on servient land to extinguish the right of way.  In this case the existence of a right of way was registered on the abstract of the dominant property, but was absent from the abstract of the servient property. The servient landowner in these circumstances argued that as a result of the failure to register the right of way following conversion of the property from the Land Registry System to the Land Titles System, the right of way was extinguished.

All parcel abstracts for land expressly stipulate that the abstracts are subject to paragraph 2 of section 44 (1) of the Land Titles Act, which provides that unless the contrary is expressed on the register, the registered land is subject to certain liabilities including easements.  This section serves as notice that the land may be subject to a right of way. The court found that despite lack of express notice of the right of way registered on the servient property, the landowner had implied notice through the section 44 statement found on the parcel abstract.  As such, had the landowner heeded the section 44 instructions and undertaken an abutting land search, the right of way would have been discovered and costly litigation could have been avoided.

The Takeaway  

This case reinforces the importance of abutting land searches when undertaking a title search prior to property acquisition.  While many title defects may be protected by title insurance, it remains necessary to complete all title searches to protect against unlikely errors and obtain clear title.

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Changes to the Condominium Act, 1998: Part 2 – Additional Provisions in the Declaration

Post by: Evan Holt

Part 1 of this series discussed the new mandatory provisions for condominium declarations. Now, in Part 2 of this series, the discussion focuses on additional (optional) provisions that may be included in the declaration.

Section 7 (4) of the Condominium Act describes additional contents that may be contained in condominium declarations. Although this is a rather open ended category, the revisions to the Condominium Act provide detail with respect to the type of provisions that a developer may wish to include.

Section 7 (4) (a) of the Condominium Act currently states that a declaration may contain a statement specifying the common expenses of the corporation.  Bill 106 proposes to amend this section adding that a declaration may contain a statement specifying the common expenses of the corporation and the circumstances that may result in the addition of any amount to the contribution to the common expenses payable for the owner’s unit to indemnify or compensate the corporation for,

(i)            an actual loss, as is prescribed, that the corporation has incurred in the performance of the corporation’s objects and duties, or

(ii)           any other purpose, if any, that is prescribed.

As with the alterations to the mandatory declaration provisions, this subtle change will provide clarity to a purchaser with respect to how and why common expense fees may fluctuate over time should the declarant choose to include a statement specifying common expenses.

In addition, Bill 106 proposes to also add section 7 (4) (f) which states that the regulations will contain additional optional items that will be permitted to be included in condominium declarations.

To view Bill 106 click here

Changes to the Condominium Act, 1998: Part 1 – Mandatory Provisions in the Declaration

Post by: Evan Holt

Bill 106 is proposing a substantial number of changes to the Condominium Act, 1998 (the “Act”). Over the next few weeks we will highlight certain changes and describe the impact these changes may have on condominium developers.  Throughout the discussion, one must remember that the Act is consumer protection legislation meant to address the imbalance of expertise and bargaining power between a developer and unit purchasers. Therefore, many of the proposed changes are efforts to increase the protection of consumers.

The Government of Ontario plans to have Bill 106 enacted by the end of 2015 and proclaimed by the end of 2016. However, extensive regulations that will provide further instructions, limitations and clarity to the Act are yet to be drafted and may not be of force and effect for some time after the enactment of Bill 106.035

The registration of a declaration is a required step in the creation of a condominium corporation. The declaration is a governing document of a condominium corporation and the requirements for its contents are set out in section 7 of the Act. The declaration must contain certain provisions.

As noted above, an extensive body of regulations will further the purpose of the Act. An important note with respect to changes in section 7 of the Condominium Act, 1998 is that it will be subject to any prescribed regulations as passed by the Government of Ontario.

A notable change with respect to the mandatory provisions to be included in the declaration of a condominium corporation are the addition of subsection 7 (2) (d1).

Subsection 7 (2) (d1) requires that a declaration contain a statement explaining how common interests and common expenses in the condominium are determined. These interests are usually determined by the number or size of units within the condominium corporation. We have generally included such a provision in the past, however, the inclusion of such a provision will be mandatory. A declaration must then provide purchasers with a clear understanding of how common interests and common expenses will be determined in the condominium declaration.

The proposed change to the mandatory provisions to be included in the declaration do not appear to be onerous on a developer. A developer does not acquire additional risk as a result of the changes and the consumer gains a greater level of understanding with respect to how common interest and common expense percentages are determined.

Part 2 of this discussion will speak to changes with respect to optional provision in the declaration.

To view Bill 106 click here.

To view the Condominium Act, 1998 click here.

Taking the Bite Out of Zoning

Post by: Evan Holt199

A property is often acquired for the purpose of continuing the existing use of the property, redeveloping an existing building(s) for a new purpose or developing a vacant site. In any of these cases, it is prudent to make the agreement of purchase and sale conditional on confirming the property zoning permits the existing or proposed use. It is also prudent to obtain competent legal and planning advice early on in the process.

The recent Ontario Superior Court decision of Meron v 2182804 Ontario Ltd., illustrates the impact zoning regulations may have on the use of a building and how an unconditioned offer can prejudice a buyer. The case also highlights the need to do more than rely on general oral statements made by a property seller or preliminary municipal responses when deciding whether to proceed with a transaction.

In the Meron case, the buyer brought an action for return of deposit and damages from the property owner for breach of the purchase agreement. The buyer’s action was dismissed. The seller’s counter claim against the buyer for failing to close the transaction was successful.

The purchase price of the property was $3.5 million. The seller required the offer to purchase to be free of conditions. The agreement was drafted by the buyer’s agent.

The buyer alleged a representative of the seller made the following representations before the agreement was signed:

  • that the property could be used as a restaurant and there would be no issues with the City of Toronto providing approval for such use; and
  • if for any reason the property could not be used as a restaurant, the representative of the defendant (or possibly the representative personally) would return the deposit and purchase the property back from the buyer.

The seller denied making either representation.

Before the agreement was signed, the buyer was informed by the City Planning Department there would be no problem with respect to zoning and the proposed restaurant.

The agreement had no warranties or representations with respect to zoning of the property.

Before closing the buyer was advised by the City that the building only allowed for a 2,000 square foot restaurant and not the proposed 4,000 square foot restaurant. It became clear the buyer would not be able to proceed with the proposed 4,000 square foot restaurant. The transaction did not close. The mortgagee of the property then exercised its power of sale and sold the property.

The buyer submitted it relied on the seller’s oral representation about returning the deposit and repurchasing the property if the proposed restaurant was not approved.  The buyer argued this gave rise to a collateral agreement to the agreement of purchase and sale.

The Court found that the seller may have made a general representation that the property could be used as a restaurant but there had been no representation as to the permitted size of such restaurant

As stated above, the buyer checked with the City before signing the offer to purchase to determine if the zoning would allow for a restaurant. The City provided information that appeared to satisfy the inquiry of the buyer . It was found the buyer relied on the information provided by the City and not the assurance made by the representative of the seller with respect to zoning.

The buyer did not consult a lawyer before presenting the agreement.

The Court was not persuaded the seller had promised to return the deposit and repurchase the property if the proposed restaurant was not permitted.

The Court found the alleged representations lacked clarity in any event and refused to find the existence of any collateral agreement as alleged.

The seller brought a counter claim against the buyer for damages resulting from the failure of the buyer  to close the transaction.

The take away

This case illustrates how important it is for a buyer to not rely solely on oral representations about a property’s zoning compliance from anyone, be it the seller or the municipality.

We suggest that for significant transactions, such as the one described in this case, a buyer should retain a competent planning firm to investigate the property and provide a report on significant items such as zoning so that a buyer does not end up with a property that can’t be used for the buyer’s intended purpose.

The buyer should do this before submitting the offer to purchase or, as is more typical, have the agreement of purchase and sale conditional for a reasonable period of time upon being satisfied with the property zoning.

The agreement of purchase and sale language needs to be very clear as to what is desired by the buyer.

Sometimes, as in the Meron case, the seller will not consider a conditional offer. This forces a buyer to clearly confirm the zoning before submitting the offer to purchase, walk away from the property, or take its chances. Unfortunately for the buyer in the Meron case the decision to take its chances did not work out.

A buyer should also have the offer to purchase either prepared or reviewed by a lawyer with the appropriate level of applicable experience . Some realtors do not have the necessary experience or skill to properly draft such an agreement.

To read the full decision click here.

Unresolved Warranty Claims Under The Ontario New Home Warranties Plan Act

Post by: Evan Holt

A recent decision of the Ontario Superior Court of Justice – Blair v Tarion Warranty Corp. (Tarion) –  confirmed that warranty claims under the Ontario New Home Warranties Plan Act (ONHWPA) can only be pursued by the current owner of a home.

The appellant, Blair, took possession of the subject property in February 2010 and complained to Tarion with respect to insufficient heating in the home. Tarion conducted an investigation that was completed in the summer of 2012 and concluded that duct modification needed to be completed.

After the investigation, in November of 2012, Blair installed within her condominium unit, a gas fireplace at a cost of $17,000.00. This installation was completed without the approval of Tarion. Blair claimed the cost of installation but Tarion denied compensation on February 28, 2013.

Blair appealed the refusal of reimbursement to the Tribunal. During the proceedings, Blair disclosed that she had sold the subject property on October 15, 2013. However, Blair stated that as part of the agreement of purchase and sale she had entered a collateral agreement with the purchaser to maintain her claim against Tarion. The Tribunal dismissed the appeal stating that when Blair sold the subject property she lost standing to continue her action against Tarion.

In this appeal, Blair alleged the Tribunal failed to recognize that the collateral agreement assigned the rights of the current owner to Blair.

Blair relied on the decision of the Tribunal in Liddiard v Tarion Warranty Corp., which included the following statement:

Nothing in this decision should be constructed as denying the Applicants the right to approach the current owners of the home and to seek some form of assignment of their claim.

Liddiard v Tarion Warranty Corp. was appealed to the Divisional Court where it was confirmed that a warranty “runs with the home”. The ONHWPA does not extend warranty coverage to previous owners. Additionally, the consumer protection nature of the ONHWPA is best served though fixing buildings and not compensating individual owners.

The court noted that the claim presented by Blair only dealt with the installation of the fire place and not with the insufficient heat provided to the unit. The current owners never assigned the right to pursue a claim with respect to the insufficient heat, such assignment would violate s. 13(6) of the ONHWPA.

In this case, the court concluded that as the purchaser of the subject property from Blair had no right with respect to the fireplace claim against Tarion, and therefore, such a claim could not be assigned. The purchaser acquired the property with the fireplace and benefited from its presence. Thus, when Blair sold the condominium unit she was compensated for the presence of a fireplace.316

Tarion submitted that a previous owner of a home subject to warranty coverage may be compensated for an unresolved warranty claim without contravention of the statutory warranties framework so long as:

  • any warranty claims are pursued by the then owner of the home; and
  • the arrangements still allow for the possibility of the builder or Tarion to remediate any valid defect, as opposed to providing only for the payment of compensation from Tarion.

Tarion goes on to provide 3 examples of how such a resolution could be reached:

  1. the purchase price could be discounted to reflect the uncertainty the purchaser may face with respect to the outstanding claim;
  2. the purchase price of the home is set to reflect the price of the remediated home. The purchaser would pursue the warranty claim and retain any compensation paid. This may also include a risk mitigation clause in which the vendor would be entitled to a portion of the compensation received by the current owner above a certain amount; and
  3. the vendor could provide Tarion with a signed appointment and acknowledgement explicitly stating that the vendor has been appointed an agent for and in the name of the current owner with respect to unresolved warranty claims. Additionally there should be provisions relating to accessing the home, and the authority of the agent. An agreement would need to be in place between the vendor and the current owner so that the vendor could recover any compensation granted to the current owner.

The consumer protection nature of the ONHWPA is for the protection of an owner or subsequent owner within the warranty period of a new home. This decision illustrates that although a previous owner may benefit from a claim brought by the current owner, the rights of the current owner to pursue an outstanding warranty claim may not be assigned.

To read the full decision click here.

Adverse Possession & Land Titles Conversion Qualified Lands

Post by: Evan Holt

A recently released Ontario Superior Court of Justice decision clarifies adverse possession claims with respect to property registered in Land Titles Conversion Qualified (LTCQ). The lands in dispute were converted to LTCQ on December 14, 1998. Here, “the critical time period is the time prior to the conversion of title into Qualified Land Titles”.

On October 22, 2004, the plaintiff purchased 322 King Street, Peterborough. The plaintiff had previously been a tenant of the property for a number of years. On December 22, 2000 the defendant purchased 320 King Street, Peterborough, which lies to the east of the plaintiff’s property.

The plaintiff asserted that the defendant no longer had a right-of-way over the easterly 8 feet of the plaintiff’s land. Additionally, the plaintiff asserted that possessory title had been established with respect to a triangular strip of land on the west side of the defendant’s property which had been enclosed by a chain-link fence, and a 6 inch encroachment on the defendant’s property caused by a garage constructed on the plaintiff’s land.

As of the date of registration, LTCQ lands are subject to:

  1. the limitations, qualifications and reservations contained in subsection 44(1) of the Land Titles Act (Ontario) save and except for the provisions of subparagraph 11 (subdivision control), subparagraph 14 (dower rights);
  2. the rights of any person who would, but for the Land Titles Act (Ontario), be entitled to the Lands or any part of it through length of adverse possession, prescription, misdescription or boundaries settled by convention; and
  3. any lease to which subsection 70(2) of the Registry Act (Ontario), attached hereto, applies.

Although not discussed here, as of the date of registration, LTCQ lands are not subject to provincial succession duties and escheats or forfeiture to the Crown.

“Section 51(2) of the Land Titles Act preserves a possessory title if the length of possession that is necessary has elapsed by the time the conversion in the Land Title system takes place”. Therefore, the plaintiff had to establish that prior to December 14, 1998, the requirements of possessory title were satisfied.

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To establish a claim of possessory title, the plaintiff must prove:

  • actual possession for the statutory period;
  • that such possession was with the intention of excluding the true owner; and
  • discontinuance of possession for the statutory period by the true owner.

An affidavit dated October 21, 1998, provided by the now deceased previous owner of the plaintiff’s land stated that:

  • the garage was constructed and used prior to the previous owner’s acquisition of title to the land in 1939. During the occupation of the previous owner the garage was used without interruption or interference;
  • the owners or owner of the defendant’s property had maintained a fence in the same location as the chain-link fence continuously for a period greater than 30 years;
  • that no part of the 8 foot right-of-way had never been used by occupants or other permitted users of the defendant’s land.

The court found the statements made in the affidavit to be reliable despite the inability of the evidence to be cross examined. The court also found that this evidence demonstrated that the garage and fence had been in place for at least 10 years prior to conversion into the Land Titles system. No evidence to the contrary was provided by the defence. The court granted a declaration that the defendant’s land was subject to the encumbrances of the plaintiff.

The court found for the plaintiff with respect to the defendant’s right-of-way over an 8 foot portion of the plaintiff’s land. The court was satisfied that prior to LTCQ registration the predecessors in title to the defendant’s land had abandoned the right. This was demonstrated through the affidavit evidence and the location of the garage and fence that blocked the use of the right-of-way. In the alternative, the court also noted that the right-of-way was granted in 1913 and ceased to be enforceable 40 years after its original registration.

Access the full decision by clicking here.

Due Diligence and the Land Titles Registry

Post by: Evan Holt

3 principles underlie the Land Titles Registry:

  • the curtain principle, which stands for the proposition that it is unnecessary to examine the history of previous dealings with the land;
  • the mirror principle, which stands for the proposition that the Register is an exact reflection of the current state of title; and
  • the insurance principle, which stands for the proposition that the government guarantees the accuracy of the Registry and compensates those that suffer a loss as a result of inaccuracy.

The recent 2015 Ontario Superior Court of Justice decision, CIBC Mortgages Inc. v Computershare Trust Co. of Canada (the “Case”), appears to have altered the duties of mortgagees and purchasers in the Land Titles Registry with respect to the underlying principles.

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In the Case, Computershare Trust Co. of Canada (Computershare), the first mortgagee, was granted a mortgage against the property by the owner of the subject property. The owner then acted fraudulently to discharge Computershare’s mortgage which gave the owner title to the property free of any encumbrances. CIBC Mortgages Inc. (CIBC), the second mortgagee, was then granted a mortgage on the property by the owner/fraudster believing that CIBC’s mortgage was a first priority mortgage on the property. Additionally, Secure Capital MIC Inc. (Secure Capital), the third mortgagee, was granted a mortgage to the property believing Secure Capital’s mortgage was a second priority mortgage.

The owner/fraudster continued to make payments on the Computershare mortgage to maintain the fraud. It was only upon default of the Computershare mortgage that the fraud was discovered. The Case was brought to determine the priority of the charges registered against the property.

It was determined that the Computershare mortgage was a valid charge that had been fraudulently discharged. The discharge was a void instrument as registration of a fraudulent instrument will not cure its defect. Both the CIBC mortgage and the Secure Capital mortgage were found to be valid instruments. However, the interest in the property granted to CIBC and Secure Capital could be defeated by a claim of a bona fide owner or mortgagee, namely Computershare.

CIBC and Secure Capital were considered intermediate owners, meaning that the mortgagees, as bona fide purchasers for value, gained an interest in the land from the immediate dealings with the fraudster and had the opportunity to discover the fraud. To rely on the Land Titles Registry, a party must demonstrate due diligence before registering a charge on a property. In the Case, the court considered that the intermediate owners should have at least inquired as to how the owners were able to pay out the Computershare mortgage given their current financial standing.

This decision at the very least erodes the principles that underlie the Land Titles Registry. No longer can a mortgagee or purchaser of interest in a property simply rely on the accuracy of the Land Titles Registry. To rely on the mirror and curtain principles, a mortgagee or purchaser of interest must demonstrate that the interest was acquired subject to a diligent examination into the history of previous charges and discharges on title. Additionally, due diligence must be demonstrated for remuneration from the Assurance Fund. Thus, due diligence appears to be a requirement for any reliance or protection afforded by the Land Titles Registry.

Of interest is the finding that, had a bona fide purchaser for value purchased the interest of the property from CIBC and Secure Capital, that purchaser would be said to hold title to the land better than anyone in the world. Thus, although a fraudulent instrument may not create good title to land, it is capable of establishing a chain to good title to land.

This decision is currently being appealed. The trial decision can be found by clicking here.

Only specific relatives can be on title for HST rebate

Post by: Evan Holt

The HST new homebuyer’s rebate entitles qualified purchasers to a substantial rebate. The maximum federal and provincial portion of the rebate is $6,300 and $24,000 respectively.

A Tax Court of Canada decision released at the end of March has further clarified who can qualify for the rebate.

“[T]itle may be held by the buyer jointly with a specific blood relation, including a child and grandchild, a brother or sister, and relationships by marriage or common-law partnerships — even if the relative doesn’t live in the house.”

Here, an uncle was on title with his niece for mortgage financing purposes. As this relationship is not a category recognized by the legislation the purchaser did not qualify for the rebate.

“This means that if just one of the buyers does not qualify, even as the owner of a one percent interest in the property, none of the buyers can get the rebate.”

For the full Toronto Star article click here.

TWO HYDRO METERS IN EACH RESIDENTIAL SUITE??

Post by: William Thompson

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Recently, we have had more clients building mid and high rise condominiums apartment buildings with the intention of retaining title to the entire building and renting the suites.  When a developer decides to keep title to the building for rental purposes, the developer assumes the role of landlord and enters into the realm of tenant protection legislation.  Now, one expects tenant protection legislation to impact matters such as rental rates and increases but one wouldn’t expect it to impact decisions around building design and construction.  However, recently we encountered a regulation with respect to billing tenants for electricity consumption that every rental property owner or developer needs to know.  It is important to emphasize that this legislation potentially applies to all forms of rental buildings, regardless whether the residential suite in question is a condominium, townhome, single family home or suite in an apartment building.

The Legislation

In subsection 40 (3) of Regulations 389/10 to the Energy Consumer Protection Act, 2010, it provides that:

(3)  A suite meter provider shall not bill an occupant of a rental unit or a member unit based on the consumption or use of electricity by the occupant in respect of the unit, as measured by a suite meter, if,

(a) the suite meter was installed after the day this section comes into force but is not deemed under subsection 43 (2) to have been installed after the day this section comes into force;

(b) the unit is heated primarily by electricity; and

(c) the electricity measured by the suite meter includes the electricity used in heating the unit.

In simple terms, what this subsection is saying is that if electricity is the primary heat source for a rental suite constructed after 2010, the landlord of the unit will not be able to use a single hydro meter to meter electricity consumed in the suite and bill the occupant for such consumption.  The logic behind this provision is highly questionable and now with the proliferation of packaged terminal air conditioner (PTAC) units providing heat, many of which are electric, it is a problem for developers.

Essentially, a developer has four choices if the developer chooses to heat a rental suite with a PTAC unit:

  • install a natural gas PTAC system if feasible given the building design and budget;
  • install two hydro meters, one to measure electricity consumption by the PTAC system and the other to measure consumption by the lights, plugs, appliances etc. and bill the tenant for both amounts;
  • separately measure and bill the consumption by the lights and plugs etc. in the residential suite with a single meter that does not measure the consumption of electricity by the PTAC system and include an estimate of the consumption by the PTAC system in the base rent; or
  • include all electricity consumed by the tenant in the base rent for the residential suite.

Obviously none of these options are ideal.  In particular, there is a significant cost to having two meters.  On the other hand, options (c) and (d) add exposure to the developer, especially as the PTAC systems are typically controlled within the residential suite and the rent cannot vary based on actual consumption.

And while none of the solutions are ideal, at least if a developer is aware of the issue, the developer can determine the best course of action during the planning stage of the building and avoid nasty surprises after the fact.

As noted, it is difficult to understand the thinking behind this provision.  Options (c) and (d) do nothing to encourage conservation by tenants and impose risks on the developer that to a large extent are controlled by the tenant because the tenant will likely control the level of heating and cooling in the residential suite.  Options (a) and (b) may not be feasible or cost effective.  Regardless, developers need to be aware of the legislation and the impact it could have on their building and future operations.

Parkland Dedication Fees Capped by Ontario Municipal Board

Post by: Roy Gentles

Parkland dedication, or cash-in-lieu of land, has been a hotly debated topic between municipalities and developers for years.  In a decision dated January 15, 2015, the Ontario Municipal Board (“OMB”) sided with developers saying that the Town of Richmond Hill’s parkland dedication rate, the cash-in-lieu equivalent argued to be $37,600 per unit, was too high.

The OMB ruling imposes a cap on how much the town can charge on new development: 25 per cent of the land being developed, or its value in cash.

“No matter how many units there are on the site, they are going to pay the same amount,” said Bassios. “The cap removes any relationship between a density increase and the parkland that they owe,”

With an appeal to the to the divisional court likely, this is a case we will be watching closely.

For the full Toronto Star article click here.