Western Canada Business Litigation Blog - Vancouver | Calgary | Yellowknife

Landlords, tenants and law students all wrestle over what it means for something to be a fixture as opposed to a chattel.  It matters to landlords because, at the end of a tenancy, fixtures can become their property and enhance the land value.  It matters to tenants because they risk losing valuable assets installed on the premises as part of their business.  It matters to law students because, on their real property exams, they are frequently asked to write intelligently on a legal test that seems straight forward but, in its application, has bedeviled both litigants and courts. 

While most commercial leases or property sale agreements contain express terms dealing with this subject, there are occasions where a tenancy ends or a property is sold that brings a fight over what may be removed and what must stay with the land.  This generally arises where the written lease or property sale agreement is either ambiguous or silent on the subject or, in some cases, where there is no written agreement at all.  The legal test for determining whether an object is a chattel or a fixture is well settled.  It was articulated at the turn of the last century in cases such as Stack v. T. Eaton Co. (1902), 4 O.L.R. 335 (Ont. Div Ct.).  That test has repeatedly been adopted in British Columbia[1] and is articulated as follows:

1. Articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances establish that they were intended to be part of the land.
2. Articles affixed to the land even slightly are to be considered part of the land unless the circumstances establish that they were intended to continue as chattels.
3. The circumstances necessary to alter this primâ facie character of the objects are the degree of annexation and the object of such annexation, “which are patent to all to see”.
4. The intention of the person affixing the object to the soil is material only so far as it can be presumed from the degree and object of the annexation.

More colloquially, the test has been expressed as “whether annexation of equipment was for the better use of the equipment or for the better use of the realty to which the equipment was annexed”: Heathron Developments Ltd. v. Kemp Concrete Products, (1999) 56 B.C.L.R. (3d) 284 (B.C.C.A). 

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On Monday October 29, 2012 the B.C. Property Assessment Appeal Board released an important decision reducing the assessed value for property tax of the upland land and improvements at the Horseshoe Bay Ferry Terminal to a nominal value.  BC Ferries occupies the Province-owned property both under a long-term lease restricting the property use to ferry terminal, and under a contract imposing service requirements for the three routes to and from Nanaimo, Langdale and Bowen Island.  If not used this way, the terminal reverts to the Crown.   In determining the assessed value of the property, the Board is required to take into consideration the impact of the lease use restriction and contractual service requirements on value.  The Board determined that the operation of the ferry terminal is uneconomic, and as a result, there is no market beyond BC Ferries for the property.  In light of this, the Board ruled that the property has nominal value for property taxes, reducing taxes for the terminal by roughly $1.5 million over the three years under appeal.   The decision may have broad implications to the assessed value of other terminals in the ferry system. 

Jim Fraser of Lawson Lundell represented BC Ferries before the Board.

In June 2012, my colleague, Craig Ferris wrote about the B.C. Court of Appeal decision in 229 Burrard Residential Limited Partnership v. Essolat where the Court endorsed a strict application of the terms of the B.C. Real Estate Development Marketing Act (“REDMA”).  There, the Court set aside a pre-construction sales contract and ordered the return of the purchase deposit by reason of the developer’s failure to file an Amended Disclosure Statement advising of a delay in the anticipated completion of the project. 

Building on that decision, the Plaintiff in Lee v. Georgia Properties Partnership, 2012 BCSC 1484 applied to certify an action as a class proceeding under the B.C. Class Proceedings Act on behalf of all persons who purchased a pre-construction unit in the private residences at the Hotel Georgia prior to May 22, 2012.  As in the 229 Burrard case, the action is based on a failure of the developer to file an Amended Disclosure Statement.  The Defendant began marketing strata lots in the Hotel Georgia project in September 2007.  The original Disclosure Statement for the development indicated a construction completion date of December 2011.  Construction of the development did not in fact complete in December 2011 and the Defendant did not file an Amendment to the Disclosure Statement until May 22, 2012, one business day after the Plaintiff commenced the proceeding.  Construction is anticipated to complete on October 31, 2012. 

The Plaintiff argued that the case was appropriate for a class proceeding in that there is a single common issue based upon a statutory scheme (REDMA) that is determinative of the parties’ rights.  Moreover, he argued that there is a clearly identifiable class comprised of all persons who signed purchase agreements prior to the date on which the Amended Disclosure Statement was filed.  The evidence indicated that there are 96 purchasers in the proposed class.

The test for certifying a proposed class proceeding is set out in section 4(1) of the Class Proceeding Act as follows:

(a)       The pleadings must disclose a cause of action;

(b)       There must be an identifiable class of two or more persons;

(c)        The claims of the class members must raise common issues;

(d)       A class proceeding is the preferable procedure for the fair and efficient resolution of the common issues; and

(e)       There is an appropriate representative plaintiff.

The Judge, Mr. Justice Savage, assessed the Plaintiff’s claim in light of these factors and declined to certify the proceeding.  He accepted that the Plaintiff had advanced a proper cause of action based upon a breach of REDMA however he rejected the argument that there was an identifiable class of two or more persons.  He did so because there was no evidence before the Court of any other purchaser that had complained about the failure of the developer to file an Amended Disclosure Statement or that had come forward and indicated a desire to get out of the purchase contract based upon the delay in completion.  In his view, the only claim that had been advanced was that of the Plaintiff and there were no other claims that would support the certification of the action as a class proceeding.  For similar reasons, he held that there were no common issues raised as between class members and that a class proceeding is not the preferable procedure. 

One other factor relevant to the Judge’s finding was the fact that there was evidence that units in the development were in short supply and the developer had produced a purchaser who apparently was willing to take an assignment of the Plaintiff’s contract.  It was therefore not apparent to the Judge that the Plaintiff had suffered any loss or that he would even proceed with the action.

The decision in Lee suggests that while REDMA generally may favour the position of purchasers, as found by the Court of Appeal in 229 Burrard, a class action may not be the most effective vehicle for advancing claims based upon delayed completion unless there is compelling evidence that a significant number of purchasers desire relief from their contractual obligations.  Absent such evidence, it will be left to individual purchasers to pursue their remedies on their won.

Two young friends pool their meagre resources to buy a piece of property together.  Their goal is to build equity and have a place to live.  Alone, neither could afford it.  They split the mortgage payments and share the expenses.  Things go well for the first few years and their equity increases.  Time passes and things change.  One wants to keep the real estate as a long term investment.  The other needs that value to invest in a new business, pay for her kids’ schooling or get medical care for an aging parent.  Whose goal prevails?

This is a relatively common scenario.  In the absence of either a consensual settlement or a written agreement governing the relationship, the only recourse for solving the problem is to the courts.  In such cases, the Partition of Property Act (the “PPA”) provides the court with the authority to “direct a sale of the property and a distribution of the proceeds”.  Unless there is “good reason to the contrary”, the court will order a sale of the property.  The court can also give directions about how that is to be done and the manner in which the sale proceeds are to be dealt with.  The courts have a broad and unfettered discretion to refuse a sale where it “would not do justice between the parties.”  Practically, the onus of showing this is on the party opposing the sale.

Two recent B.C. Supreme Court cases illustrate when the court will and when it will not order a property sale under the PPA. 

The first case, ter Borg v. Morris, involved a scenario essentially identical to that described above.   One of the co-owners opposed the property sale and did not have the financial wherewithal to buy the departing partner out.  He argued that the sale should not be allowed because the property was his home; there were unresolved financial issues between them; there was disagreement over the terms of their original oral agreement in buying the property; and a sale would result in a significant mortgage prepayment penalty.  In dismissing each of these objections, the court essentially noted that the prospect of a future sale always existed and any dispute over the accounting and financial penalty issues could be adjudicated after the sale.  Similarly, it was always possible that the basis for embarking on the original business venture would change.  Such a change would always prejudice one of the two owners: one risked losing his home and the other access to the money tied up in the property.  As the competing hardships were essentially equal, the court found that the onus to establish “good reason” not to sell the property was not met.  The property was ordered sold, subject to an accounting.

At the other end of the spectrum is the case of Cypress Gardens.  Cypress Gardens is a common law condominium development, comprising 177 individual units owned by 135 different owners, each of whom was a “co-owner” of the entire complex.  A number of the individual owners applied to court under the PPA to compel the sale of the entire 9.5 acre parcel to a developer.  Most other owners opposed the application.  While the court dealt with many issues in this rather complex case, it also considered whether a court ordered sale was warranted under the PPA. 

The court noted that the facts and circumstances of each case must be examined to determine whether a good reason existed to refuse a sale.  As a result, there is no general rule circumscribing the types of reasons that justify refusing to order a sale.  Those reasons can include “serious hardship” and lack of "good faith, vexatiousness or maliciousness" on the part of an applicant. 

After reviewing the evidence, the court found that a sale would “force particularly vulnerable people out of their homes, including young children, single parents, the elderly, the infirm, and people of very limited financial means.”  Many would not be able to afford comparable property nearby.  They would be forced to rent and/or move away to different municipalities.  The court also found that there was a reasonable understanding among all the Cypress Gardens owners that, when buying in to the complex, they were buying individual homes and not simply fractional interests in a larger complex.  For these reasons, the court was satisfied there existed “good reason” not to order a sale of Cypress Gardens. 

Joint ownership of land is extremely common.  If you wish to avoid the prospect of an involuntary sale in future, it is best to set out in writing with your joint-owners how and when the property may be sold.  On the other hand, if you find yourself tied into joint property ownership and cannot reach consensus with your partners on what to do, there is recourse to the courts to help effect a sale as the cases discussed above demonstrate.

Last summer, I blogged on the ever expanding body of jurisprudence arising from purchasers of “pre-built” condominiums attempting to use their rescission rights provided under the Real Estate Development Marketing Act (British Columbia) (“REDMA”) to avoid completing their condominium purchases.  In particular, my blog related to the more developer friendly decision in Sharbern Holding Inc. v. Vancouver Airport Centre Ltd.

On January 24, 2012, Associate Chief Justice Cullen of the British Columbia Supreme Court released Bosa Properties (Edgemont) Inc. v. Ban (“Bosa”).  This is a further decision regarding REDMA and, in particular, it adds to the line of cases relating to the legal effect of an inaccurate estimated completion date included in the Disclosure Statement for the project.  The twist in this case is that the purchaser alleged a right to rescind because the development was completed early.

Associate Chief Justice Cullen attempted to reconcile the previous case law and concluded that an incorrect estimated completion date does not, without more, provide the purchaser with a right to rescind the purchase agreement.  Rather, he held that the “key concept, however, is materiality which, in the context of REDMA, is a function of the value, price and use of the condominium. Delay manifestly affects those criteria and would be in the mind of a reasonable person as such; acceleration is qualitatively different than delay and would not similarly influence the mind of a reasonable person.”

At the end of the day, Bosa stands for the concept that each time an estimated completion date is found to be an inaccurate, the court will need to consider whether the inaccuracy was “material”.  In doing so, the court will need to consider whether the delay has affected the “value, price and use” of the condominium.  Accordingly, a purchaser looking at his or her options will not be able to simply point to a missed completion date and say it is “material”.  Instead, evidence will need to be led concerning how the “value, price and use” were affected in the particular circumstance of the case.  Bosa represents a tougher road ahead for would be defaulting purchasers.

As any strata owner knows, an obstreperous unit owner can make everyone else’s life hell.  Keith Fraser, in a recent article in The Province reported on a B.C. Supreme Court ruling ordering problem strata owners to sell their unit as a result of their outrageous conduct.  The decision is interesting for two reasons.  First, it encourages strata councils to seek redress from the courts sooner.  Second, it confirms the court’s authority to order the sale of a troublesome strata member’s unit.

The court described the Jordisons’ “several years” of poor conduct as “excessive noise, abusive language, uttering threats and harassment.”  For over four years, the strata council tried to moderate the Jordisons’ behavior.  The strata council wrote letters, which went unanswered, and imposed fines, which went unpaid.  Ultimately, the strata members resolved unanimously to seek the assistance of the court.

Describing the order to sell the Jordisons’ unit as draconian but necessary, the Court relied on the provision of the Strata Property Act, R.S.B.C 1998, c. 43.  This statute provides strata councils with the responsibility for “managing and maintaining the common property and common assets for the benefit of the owners”.  The strata council must do so through its bylaws and rules which, among other things, govern the conduct of residents and visitors.  Strata bylaws generally provide that no one is entitled to cause a nuisance, unreasonable noise or unreasonable interference with the rights of others.  As the Court noted, “the bylaws and rules are created to establish acceptable standards of behavior which are applicable to all members of the Strata, thereby enabling the members to line in peaceful accord with their respective neighbours absent harassment and abuse”.

Relying on this framework and the evidence before it, the Court concluded “that the Jordisons’ conduct, including their obscene language and gestures, their interference with the activities of others, their spitting at other residents, the unacceptable loud and unnecessary noise they in their unit created, have unreasonably interfered with the rights of others who are entitled to enjoy in peace the common property, the common assets and their own strata lots.  . . .  The Jordisons’ actions amount to an assault upon those residents of the Strata who have been for some years subjected to the Jordisons’ misbehaviour in all its varied forms.” 

The interesting aspect of this decision is not that the order to sell was made, but that the implicit criticism of the strata council for not seeking relief from the courts sooner.  The Court commented that the strata council’s imposition of fines, which were not paid, did not amount to the effective enforcement of its bylaws.  Instead, the strata council should have sought injunctive relief which, if granted, “would have put a court order into effect with the expectation that its presence would have curbed the breaches of the bylaws by the Jordisons.  If the Jordisons, either jointly or separately, failed or refused to comply with the terms of such an injunction, the Strata could apply for a finding that one or both of the Jordisons were in contempt or, alternatively, the Strata could then have brought an application for an order that Ms. Jordison sell her unit.”

Had this been done, the Court would have been able oversee the Jordisons’ conduct for a period of time before being asked to order the sale of their unit.  Ultimately, the Court concluded that the Jordisons were unable to “accept the seriousness of their actions and the deleterious impact their actions have had on the lives of others around them.”  This justified the order to sell.  However, it is clear the Court would have preferred a more graduated approach to the exercise of its jurisdiction.  Asking for an order to sell a troublesome owners’ unit is the nuclear option and will not be as easily granted as an injunction designed to seek conformance with the bylaws and rules.

The lesson for strata councils is two-fold.  First, seek the assistance of the courts sooner when faced with objectionable conduct.  Remember to document well the conduct and the strata’s efforts to address the problem.  Second, if a strata seeks the assistance of the court, the court is more likely to exercise its jurisdiction to force the sale of a troublesome owners’ unit in the face of continuing problems.

The sale of condominiums in British Columbia is a big business.  The financing for the development of these condominiums is often dependant on the successful marketing and sale of the condominium units prior to construction.  These marketing and sale activities are governed by the Real Estate Development Marketing Act (British Columbia) (“REDMA”) which, among other things, sets out the requirements for a Disclosure Statement and provides that contracts entered into where there has been non-compliance with certain provisions of REDMA are unenforceable.

In 2010, the British Columbia Court of Appeal affirmed the trial decision in Chameleon Talent Inc. v. Sandcastle Holdings Ltd., (“Sandcastle”).  Sandcastle has been interpreted as being a highly purchaser friendly decision which set a very low standard for the test of what constituted a “material” fact, which if misstated, gave rise to the ability of a purchaser to seek an order that the contract for purchase of the condominium unit was unenforceable.

In 2011, however, the Supreme Court of Canada considered the issue of “materiality” under legislation similar, but not identical, to REDMA in Sharbern Holdings Ltd. v. Vancouver Airport Centre Ltd. (“Sharbern”).  The hurdle for materiality set out in this decision was considerably higher than the standard in Sandcastle.

A trial judge in British Columbia has recently analyzed REDMA utilizing the higher threshold for materiality from Sharbern and, in reaching his decision, distinguished Sandcastle.  In 299 Burrard Residential Limited Partnership v. Essolat (“299”), the Court dealt with the question of whether it was a misstatement of a material fact where a Disclosure Statement estimated construction of the condominium development to be complete in September 2009 and the development was not completed in fact until December 2009 with occupancy in January 2010.  Relying on Sandcastle, the purchaser argued that the estimated construction completion date was a material fact and that it had been misstated in the Disclosure Statement.  He argued that this should result in an order that his agreement to purchase the condominium unit was unenforceable.

The Court disagreed and followed Sharbern finding that it had to be “satisfied that there was a substantial likelihood that the undisclosed delay in completion would have had actual significance to a reasonable purchaser in making a decision whether to purchase a unit”.  The Court found that a reasonable purchaser would have seen the construction date as an estimate and it would not have influenced a reasonable purchaser in making such a decision.

It appears that 299 represents a levelling of the ground for REDMA based disputes and developers will have an increased likelihood of holding purchasers to the bargain made before the condominium was built.

On December 12, 2010, the trustees of four dissident parishes within the Anglican Church of Canada (the “ACC”) announced that they will ask the Supreme Court of Canada to hear their appeal from the decision that the lands and buildings used by those parishes are held in trust for the ACC.  Effectively, this decision means that those congregations must vacant their lands and buildings if they continue to worship under the auspices of he Anglican Church in Canada or the “ANiC” (a parallel structure set up by conservative parishes in Canada governed by the Bishop of the Southern Cone).

This schism is rooted in the 1998 decision of Diocesan Synod (effectively the local representative governing body), which was put into effect by the Bishop of the Diocese of New Westminster in 2002, to authorize, but not require, the blessing of same-sex unions by clergy of this Diocese.  The blessing is distinct from the sacrament of marriage which is not performed for same-sex couples anywhere in the Anglican Church, outside of the State of Massachusetts.  This decision was heavily debated in the Anglican world and has been criticized by conservative as being doctrinally inconsistent with the main tenants of the Anglican Church Communion (the world-wide Anglican organization).

In response to the Bishop’s assent to the blessing of same-sex marriages, the Parishes of St. John’s (Shaughnessy), The Good Sheppard, St. Matthias and St. Luke, and St. Mathews (Abbotsford) overwhelmingly passed resolutions that, to remain in full “communion” with the Anglican Church Communion, the parishes requested oversight of the Bishop of the Southern Cone (which does not allow the blessing of same-sex unions), agreed to affiliate with the ANiC and directed their parish trustees to take all steps necessary to effect these changes.

The ACC is a highly hierarchical organization and grants the Bishop of the Diocese wide ranging powers to govern.  In response to these resolution, the parish priests voluntarily resigned from the Ministry within the Anglican Church of Canada but did not remove themselves from the parish properties and buildings. This decision led to the four parishes bringing legal action against the Diocese of New Westminster and the Bishop.

The trial decision was released on November 25, 2009.  At trial, the Parishes argued that the properties and buildings were held in trust for “Anglican ministry” which meant traditional and orthodox Anglican doctrine.  By approving same-sex blessings, the Parishes argued that the Diocese of New Westminster had departed from orthodox Anglican doctrine.  As a result, the trust could no longer be performed within the ACC strucure and the court should vary the trust (called a “Cy-pres” remedy) to allow for the continued use by the existing congregations under the auspices of the ANiC.

The trial judge disagreed.  He found that all properties and buildings were subject to the internal organizations of the ACC and that the Court should be “neutral” and not engage in doctrinal issues.  Alternatively, if the properties and buildings were held in trust for the “Anglican ministry”, this meant that they were held in trust subject to the structure of the ACC and the doctrinal changes were properly approved according to that structure. 

The British Columbia Court of Appeal dismissed the parishes' appeal and upheld the trial judge’s decision.  However, they narrowed the legal basis for doing so.  The Court did not agree that the courts should remain “neutral” and rejected that as a legal basis for the decision.  Instead, the Court agreed that parish assets are held in trust and that the trust is for the purpose of “Anglican ministry”.  The Court concluded “after much anxious reflection” that it was antithetical to the nature of Anglicanism to contemplate an “Anglican ministry” in a parish that had withdrawn from its diocese and bishop.  Accordingly, the purpose of the trust on which the parish corporations hold the church buildings and other assets is to further Anglican ministry in accordance with Anglican doctrine within the ACC. In Canada, the General Synod has the final word on doctrinal matters so Anglican doctrine now included the ability to bless same-sex unions.

This schism now moves to its final legal stage – the Supreme Court of Canada.  A decision of whether the Supreme Court of Canada will agree to hear the case is expected within four to six months.

Imagine being faced with attempting to sell a piece of real estate in a soft market.  You eventually obtain the price you are willing to accept and therefore you enter into a binding contract.  Unfortunately, the deal does not close because the purchaser is either not able to secure financing or is delayed in obtaining financing (perhaps because the banks are worried about the soft market and are not convinced that value in the deal is present).  The deal is cancelled and you are once again left with a property which you still wish to dispose of and the market is now even softer than when you entered the deal which ultimately failed.

Despite the apparent dire circumstances noted above, all is not lost as you ought to be able to resell the property with the comfort that if the prices have dropped, you should be able to sue the defaulting purchaser for the difference and therefore you can still come out even – correct?  According to a recent decision from the B.C. Supreme Court, the answer to that question is “no - incorrect”.  The court in that case held that the seller had a duty to mitigate its damages, meaning that it had to take reasonable steps to minimize the loss arising from the failed deal.  By reselling the property in a relatively quick timeframe at a significant loss, the court held the original purchaser was off the hook and was therefore not liable to the seller for any damages whatsoever. 

The result, although somewhat surprising, could be defended on the basis that an aggrieved seller can’t simply sell the property for the next offer that comes along and then look to the original purchaser for the difference.  There ought to be some accountability on the part of the seller.  However, the circumstances are complicated by the falling market because if the seller had waited any longer, the market could have fallen even further meaning the seller would have sustained even more damages.  The B.C. Real Estate Association, in its monthly publication, has published a very good case commentary on the decision.  The aggrieved seller has appealed to the BC Court of Appeal.  We, along with the hopes and dreams of an abundance of aggrieved sellers in today’s still very soft real estate market, will await with anticipation the result of the appeal.