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Real Property - Rule Against Perpetuities

. Ottawa (City) v. ClubLink Corporation ULC

In Ottawa (City) v. ClubLink Corporation ULC (Ont CA, 2021) the Court of Appeal considered the rule against perpetuities:
[2] The rule against perpetuities is not controversial. Of ancient origin, the rule arises out of the public policy against the fettering of real property with future interests dependent upon unduly remote contingencies. It applies to extinguish an interest in land if the interest does not vest within 21 years. The rule does not apply to a contractual right that does not create an interest in land. It serves only to invalidate contingent interests in land that vest too remotely. See: Canadian Long Island Petroleums Ltd. et al. v. Irving Industries Ltd., 1974 CanLII 190 (SCC), [1975] 2 S.C.R. 715, at pp. 726-27, 732-33; 2123201 Ontario Inc. v. Israel Estate, 2016 ONCA 409, 130 O.R. (3d) 641 at para. 20; London and South Western Railway Co. v. Gomm (1882), 20 CH. D. 562 (C.A.), at pp. 580-82.

....

[33] Respectfully, the application judge erred in using the expectation that a contingency would materialize as a factor to distinguish between an intent to create an interest in land and a contractual right. As earlier noted, the rule against perpetuities applies only to contingent interests in land that vest too remotely. Whether the contingent interest in ss. 5(4) and 9 was intended to materialize is not the question; it is the nature of all contingent interests that they may never materialize. Moreover, the lack of control over the triggering of the conveyances does no more here than emphasize the contingent nature of the interests in issue.

[34] The governing case law establishes that a contingent interest in land can be created without the intention that it will one day “crystallize” and that control over the triggering event is not determinative.

[35] In City of Halifax v. Vaughan Construction Company Ltd. and the Queen, 1961 CanLII 105 (SCC), [1961] S.C.R. 715, Weinblatt v. Kitchener (City), 1968 CanLII 31 (SCC), [1969] S.C.R. 157,[1] and Jain v. Nepean (City) (1992), 1992 CanLII 7629 (ON CA), 9 O.R. (3d) 11 (C.A.), leave to appeal refused, [1992] S.C.C.A. No. 473, three decisions that are factually similar to the present case, the courts found an interest in land even though there was no expectation that the interest would “crystallize”. Like here, the contractual provisions in issue allowed the municipalities to control development and were not intended to ensure the land would one day be conveyed to the municipalities. In all three cases, the conveyance of the properties to the municipalities was contingent on the owners failing to fulfil their core contractual obligations. As here, the owners’ default, which triggered the right to conveyance, was not in the interest holders’ control. While the rule against perpetuities was not found to be infringed in these cases, they establish that an expectation that the interest will “crystallize” is not required to create an interest in land.

[36] In Halifax, the Supreme Court interpreted an agreement between the City of Halifax and the Maritime Telegraph and Telephone Company. The latter made certain covenants, which were later assumed by Vaughan Construction Company Limited upon purchasing the property, to either build within a reasonable time or reconvey the property for a specific sum if it decided not to build. The deed provided that the covenant would run with the lands until the construction of the building. The court affirmed that the City of Halifax held an equitable interest even though it was not the holder of an option that it could exercise at any time. Importantly, the court held that Vaughan had no uncontrolled right to determine whether it would reconvey; unless it complied with the building covenants within a reasonable time, the City of Halifax could have enforced a reconveyance. Therefore, the City of Halifax had an interest in the land because the construction company could not prevent the exercise of the City of Halifax’s right under the covenant by doing nothing; they had to build the building or reconvey the property.

[37] Similarly, in Weinblatt, the parties entered into an agreement that provided for the reconveyance of property to the City of Kitchener for the purchase price if the purchaser failed to commence construction of a seven-story building within a specified period. The builder applied to construct a two-story building instead but was refused. Weinblatt then purchased the property from the builder but his proposal to erect a building was also not in conformity with the agreement and was likewise rejected. The City of Kitchener’s claim for reconveyance of the property was successful. The court held that the City of Kitchener had a contingent interest in property that ran with the land because the covenant provided that Weinblatt had to meet the building conditions under the agreement or reconvey the property.

[38] Finally, this court’s decision in Jain is apposite. In issue was the interpretation of a contract that contained a condition, which was included in the deed, designed to ensure development: the City of Nepean would be entitled to repurchase the property for a particular amount if Jain did not start constructing a building of a specific size within 12 months of registration of the transfer. The court found the City of Nepean had an equitable interest in the land that always existed even though the right of reconveyance was contingent on the default of the development conditions. In this case, the mortgagee took its interest with notice of the City’s equitable interest in the property.

[39] The application judge adverted to Halifax, Weinblatt, and Jain in his review of relevant case law but only as examples of “[t]he more traditional circumstances where a right to repurchase has been found to create a contingent interest in land”. These decisions, in which the circumstances are almost identical to those of the present case, found an interest in land arose notwithstanding the absence of an expectation that the right to the reconveyance would crystallize and the lack of the municipalities’ control over triggering the reconveyance. The trial judge’s conclusion that there was no contingent interest in land because there was no expectation the right to the reconveyance would crystallize constitutes an error of law: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2016 ONCA 246, 130 O.R. (3d) 418, at para. 41, aff’d 2017 ONCA 293, 135 O.R. (3d) 241, leave to appeal to refused, [2016] S.C.C.A. No. 249.

[40] The City submits that Halifax, Weinblatt, and Jain are distinguishable from the present appeal because all three cases involve provisions for a re-conveyance of property to the original vendor. The argument follows that since Kanata never owned the golf course lands, this is not the case of a landowner who is controlling the use of their land after they have sold it. I disagree that this factual difference distinguishes these cases. Whether the municipalities were the original vendors does not change the nature of the right: the municipalities were able to control development of the land through a covenant that ran with the land. The contingent interest fettered the land by controlling development, regardless of whether the interest holder was a former owner.

[41] The application judge applied the Superior Court decision in Loyalist (Township) v. The Fairfield-Gutzeit Society, 2019 ONSC 2203, relied on by the City, for the proposition that no interest in land arises where there is no expectation that the right to repurchase will crystallize. He determined that the court in Loyalist (Township) used this factor to distinguish this court’s decision in 2123201, put forward by ClubLink. In 2123201, this court concluded that an option to repurchase was an equitable interest in land; the court in Loyalist (Township) characterized the right to repurchase as a contractual right. The application judge explained at para. 72 of his reasons that in 2123201, “there was an expectation that the option to repurchase would crystallize at some point (i.e., once the gravel was removed)”; whereas, in Loyalist (Township), there was no such expectation: “the right to repurchase arose only if the Society wished to dispose of its interest to an organization that had different objectives from those of the Society … [t]hus, there was no expectation that the right to repurchase would crystallize”. As a result, the application judge reasoned that the 1981 Agreement was similar to the agreement in Loyalist (Township) and distinguishable from the agreement in 2123201 because Kanata did not expect its right to call for a conveyance of the golf course lands would “crystallize”.

[42] As I earlier explained, a contingent interest in land may never materialize. Moreover, I do not read Loyalist (Township) as standing for the proposition relied upon by the application judge: the expectation that a contingent interest would materialize was simply “[a] distinguishing feature” noted by the court in Loyalist (Township) between that case and 2123201, and not a determining factor in the court’s analysis: at para. 35. Notably, the court in Loyalist (Township) made no reference to Halifax, Weinblatt, and Jain. Moreover, the court’s determination in Loyalist (Township) that the right in question was a contractual right and not an interest in land flowed from the court’s conclusion that the agreement creating the right did not purport “to impose rights that would attach to the land”: at para. 36.

[43] The court’s reasoning in Loyalist (Township) reflects the well-established distinction that a contingent interest in land differs from a mere contractual right insofar as the agreement giving rise to the rights purports to attach the rights to the land, such as the right to call for a conveyance, which affect the landowner’s rights to freely use, manage, develop or dispose of its property: Gomm, at pp. 580-82; Loyalist (Township), at para. 36.; Manchester Ship Canada Company v. Manchester Racecourse Company, [1901] 2 Ch. 37 (C.A.), at pp. 50-51.

[44] A return to the public policy underpinning the rule against perpetuities further assists in distinguishing between a contingent interest in land and a mere contractual interest. The public policy attempts to prevent “the grasp of the dead hand to be kept on the hand of the living” in the form of restrictions on the subsequent landowner’s ability to use or dispose of its property that run with the land: Thomas Edward Scrutton, Land in Fetters, (Cambridge: Cambridge University Press, 1896), at p. 108; Canadian Long Island Petroleums, at pp. 726-27. As stated in Weber v. Texas Co., 83 F.2d 807 (5th Cir. 1936), at p. 808, and affirmed by the Supreme Court in Canadian Long Island Petroleums, at p. 732:
The rule against perpetuities springs from considerations of public policy. The underlying reason for and purpose of the rule is to avoid fettering real property with future interests dependent upon contingencies unduly remote which isolate the property and exclude it from commerce and development for long periods of time, thus working an indirect restraint upon alienation, which is regarded at common law as a public evil.
[45] In consequence, a contingent interest in land “fetters” real property, excluding it from “commerce and development” and working “an indirect restraint upon alienation”. It is this “public evil” that the rule against perpetuities targets by imposing a 21-year limitation. A mere contractual right is “within neither the purpose of nor the reason for the rule” because it does not forestall or “restrain free alienation” and is therefore not objectionable: Weber, at p. 808; Canadian Long Island Petroleums, at pp. 732-733.


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