1. CHAPTER Microsoft ® PowerPoint ® Presentation Prepared By Gail McKay, LLB, Thompson Rivers University © 2008 McGraw-Hill Ryerson Ltd., All Rights Reserved. © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved. 13 Real Estate Law

2. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-1 OBJECTIVES 1.To identify the types of estates and interests in land 2.To examine title to land and the registration systems used to establish an interest in land 3.To survey leases and the uses of leases 4.To identify how land is used to secure debt 5.To understand mortgages and the remedies upon default of mortgage payments

3. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-2 HISTORICAL DEVELOPMENT Real property is defined as land and anything permanently attached or affixed to it - fixtures In feudal England, grants of land came from the King in exchange for services, and failure to serve or pay property taxes on a freehold estate could result in its escheat to the Crown The highest form of tenure or right to hold land was the fee simple estate, which permitted the transfer of land by selling it or by leaving it to one’s heirs

4. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-3 REGISTRATION OF PROPERTY INTERESTS There are two land registration systems in Canada: the registry system and the land titles or Torrens system, depending on province or territory In the registry system, a public register is kept by the government which records all interests in land and establishes a historical chain of title; an onus is placed on prospective purchasers to trace the transfer of deeds from one fee simple owner to the next

5. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-4 REGISTRATION SYSTEMS, continued In the land titles or Torrens system, such tracing back through deeds is not required; the government certifies the title of the person with a fee simple or other interest in land to be that which is presently registered in its computerized system Certainty of title is the biggest advantage of the land titles system, which has the further advantage of having a compensation fund to assist anyone who has been the victim of an error resulting in loss

6. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-5 ESTATES IN LAND In Canada, land is owned by the Crown, with freehold estates being granted to individuals and businesses, although mineral rights and sometimes timber rights are often reserved for the Crown Because a fee simple interest can be sold or inherited, an interest in land rarely reverts or escheats to the Crown; nevertheless an escheat may occur when someone dies without heirs or without a will disposing of his or her property to others

7. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-6 ESTATES IN LAND, continued Expropriation is a re-assertion by the Crown of its title to land when it wishes to use it for a public purpose; compensation is offered to the person with a fee simple interest A life estate is a right to possession of land granted to someone for his or her lifetime by the fee simple owner, a right which reverts back to the possession of the fee simple owner on the death of the life tenant

8. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-7 THE CONDOMINIUM Governed by statute, the condominium is an estate in land involving exclusive ownership of living quarters or a business area, as well as shared ownership of the exterior building structures, lawns and parking lots Registration of the surveyor’s drawings, known as a description, of each individual unit is required at the land registry, as well as the strata plan, condominium plan or declaration associated with the common areas and their management

9. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-8 TITLE TO LAND A joint tenancy is an interest in land which is identical in time, interest and possession, with each joint tenant holding an undivided interest in the entire property, and providing a right of survivorship upon the death of one – vesting the whole of the interest in the other In a tenancy in common, the interests are not necessarily equal, an interest may be sold or conveyed, and because there is no right of survivorship, the interest of a tenant in common can be devised by will

10. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-9 CO-OPERATIVE HOUSING CORPORATIONS A group of persons may acquire an indirect interest in land through holding shares in a co- operative housing corporation and a lease to an individual unit A shareholder tenant wishing to sell will sell his or her share and assign the lease on the unit Like a condominium unit owner, a co-op housing shareholder tenant is responsible for a portion of the upkeep of the common areas and other management expenses

11. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-10 ZONING AND PLANNING The intention of land use planning is to avoid haphazard development of municipal land and to prohibit any development on green spaces or environmentally protected lands Land use plans are translated into maps specifying permitted residential, commercial and industrial uses Variances are not a right, since sudden development can affect the location of schools, roads, drainage, fire hydrants and bus routes

12. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-11 CONDUCT OF A LAND TRANSACTION The purchase and sale of land is often initiated by real estate agents, but it is helpful to have a law firm design the offer to purchase The lawyer for the purchaser will conduct an array of searches for mortgages, liens, zoning verification, municipal back taxes, and unpaid court judgments attaching to the land On closing day, the purchaser’s lawyer transfers the funds to the vendor’s lawyer and registers (often electronically) a new deed or transfer in the purchaser’s name

13. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-12 LEASES A leasehold interest is a grant by a landlord of exclusive possession to a tenant for a period of time, with the landlord retaining the reversionary interest and title Leases may be for a term certain or periodic, with the latter requiring that notice to quit be provided by either party wishing to terminate With permission, a tenant may usually create a sublease with a new tenant for a duration that is less than the remaining term of the lease

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15. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-14 RIGHTS & DUTIES: LANDLORD & TENANT A lease lays out covenants, including the right of the landlord to the payment of rent, to goods or to services in return for the right of the tenant to quiet possession of the premises Legislation may oblige a landlord to maintain the safety of the premises, but will not cover deliberate harm by a tenant Trade fixtures, by custom, can be removed by a business upon expiry of a commercial lease; otherwise, most fixtures cannot be removed

16. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-15 RIGHT OF LANDLORD: BREACH OF LEASE Tenants must pay the rent, except in certain residential tenancy circumstances only Landlords have the right to sue for unpaid rent, and in commercial leases, the right of distress to seize goods as security for payment or to sell them if rent is never paid; alternatively, a breach of a commercial lease allows landlords a right of re-entry, although not the right to both distress and re-entry at the same time For other breaches, a landlord must first give notice and a chance to correct the problem before taking action to regain possession

17. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-16 RIGHTS OF A TENANT: BREACH OF LEASE A tenant may not withhold rent for a landlord’s breach of a lease unless the relevant governing statute permits it The tenant’s remedies are threefold: suing the landlord for damages, getting an injunction to stop interference by the landlord with the tenant’s right to use and enjoyment of the property, or terminating the lease when the landlord’s interference amounts to eviction in any case

18. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-17 TERMINATION OF A LEASE Term certain leases terminate at the end of a fixed term or by surrender of the lease by mutual agreement Periodic tenancies end upon notice to quit, but are subject to restrictions on the landlord in residential tenancy legislation A tenant’s breach of a covenant such as rental arrears or abandonment of the premises will also allow a landlord to terminate a lease

19. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-18 SHOPPING CENTRE LEASES A shopping centre lease involves more than terms regarding the rental of the business premises; it often has terms requiring a contribution to costs of the common areas - such as maintenance of parking areas and the centre itself, costs associated with shipping and receiving areas, and other costs such as advertising and promotion The lease may require the business to maintain specific hours of operation and provide the landlord with a percentage of its profits over and above the payment of rent

20. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-19 LESSER INTERESTS IN LAND An easement is defined as a right by the owner of a dominant tenement to use the property of a servient tenement for a particular purpose The right to an easement may arise by express grant or permission, by legislation, by implication or, in registry system jurisdictions, by prescriptive right involving uninterrupted, open and notorious use over a long period of time – usually 20 years

21. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-20 RESTRICTIVE COVENANTS A restrictive covenant is a promise not to use property in a particular way and is registered on the title to the land, running with the land on subsequent conveyances It is expressed in negative terms - such as no cutting of trees - to permit the courts to issue an injunction if the covenant is broken The purpose of a restrictive covenant is generally to maintain the character of the area and help sustain its property value

22. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-21 OTHER RIGHTS TO LAND Mineral rights are generally reserved by the Crown unless an express purchase is made A land owner adjacent to a watercourse has a riparian right to take water for a commercial or residential purpose, but must not alter the flow In registry system jurisdictions, adverse possession is open and uninterrupted use of another’s land for 20 years Encroachments are overhangs from the buildings on one person’s land onto another’s

23. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-22 MORTGAGES A mortgage is a security instrument for a large debt which is either registered as a charge on the mortgagor’s title to land (land titles system) or which requires the transfer of the title to the mortgagee (registry system) There may be more than one mortgage placed on a parcel of land, and the order of priority is determined by the time and the date each mortgage is registered at the land registry; mortgagees are expected to conduct searches of title before deciding whether to enter a mortgage agreement and advance funds

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25. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-24 MORTGAGES, continued A mortgagor has four general duties: 1.To make the mortgage payments according to its terms 2.To pay municipal taxes and assessments 3.To keep the premises insured – unless the mortgage is for vacant land 4.To maintain the premises in good repair and not commit waste Mortgagors have a right to remain in possession and to have the mortgage discharged after full payment if these duties are met

26. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-25 MORTGAGES, continued Special clauses for a mortgagor not in default may permit payment in whole or in part of the principal owing without notice or payment of a bonus to the mortgagee Discharge under the land titles system means the charge will be removed from the title to the land; and discharge under the registry system means a statutory re-conveyance of the title to the mortgagor The assignment of a mortgage does not require the mortgagor’s consent, but he or she must be given notice of the assignment

27. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-26 MORTGAGES, continued Sale of mortgaged property is usually permitted, but the mortgagor may be liable on the covenant for deficiencies by a purchaser who assumes the mortgage Power of sale arises when there is a default on a mortgage and notice has been provided to the mortgagor and any encumbrancers; after the notice period has expired, the mortgagee is free to exercise the power of sale; proceeds go first to the first mortgagee, then to subsequent encumbrancers and execution creditors and, if there is any surplus, to the mortgagor

28. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-27 MORTGAGES, continued An action in foreclosure gives a mortgagor a right to redeem but if he or she fails to do so (usually within six months), a court eventually provides a judgment extinguishing all rights of the mortgagor in the property Sale proceedings may be commenced by a mortgagee upon notice; if arrears are not paid, the mortgagee can sell the property by tender or public auction; the advantage to the mortgagor of this sale (compared to power of sale) is that proceeds are applied to the claims of subsequent encumbrancers as well, and not just to that of the first mortgagee

29. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-28 MORTGAGES, continued After a default, a mortgagee may apply for an order for possession of the mortgaged property If the order is granted, the mortgagee may – if necessary - have the mortgagor removed by a sheriff and may have the locks changed; the mortgagor is usually allowed to return at a later date under strict supervision to remove belongings

30. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-29 BUSINESS APPLICATIONS: MORTGAGES Financial institutions and other investors are often prepared to advance funds when a mortgage of land will be used as security Types of commercial mortgages include the land development mortgage – allowing the developer to obtain the release of parts of mortgaged property as the project evolves; the building mortgage – allowing an initial small sum of funding to be released, but increasing the amount in stages as successful construction proceeds; and the collateral mortgage – where a debtor under a promissory note offers a mortgage as collateral security

31. Fundamentals of Canadian Business Law, Second Edition © 2008 McGraw-Hill Ryerson Ltd. All Rights Reserved.13-30 SUMMARY Estates in land include the fee simple interest, life estate, and condominium interest – and these interests may be held in joint tenancy or tenancy in common arrangements Lesser interests include easements, restrictive covenants, leases and, in registry jurisdictions, adverse possession Mortgages create a security interest for a mortgagee while allowing possession of the land by a mortgagor