Durham Condominium Corporation No. 123 v. Amberwood Investments Limited et al.

[Indexed as: Amberwood Investments Ltd. v. Durham Condominium Corp. No. 123]

58 O.R. (3d) 481

[2002] O.J. No. 1023

Docket No. C35155

Court of Appeal for Ontario

Charron, MacPherson and Cronk JJ.A.

March 20, 2002

Real property -- Condominiums -- Positive covenants -- Condominium corporation and owner of adjoining property entering into agreement to exchange easements and to share expenses for recreational facility -- Obligations and benefits in agreement expressed to run with land -- Positive covenant not running with land despite original contracting parties' intention to contrary -- English benefit and burden exception from Halsall v. Brizell and English conditional grant exception to rule about positive covenants not available in Ontario or applying to facts of case.

Real property -- Easements -- Positive covenants -- Condominium corporation and owner of adjoining property entering into agreement to exchange easements and to share expenses for recreational facility -- Obligations and benefits in agreement expressed to run with land -- Positive covenant not running with land despite original contracting parties' intention to contrary -- English benefit and burden exception from Halsall v. Brizell and English conditional grant exception to rule about positive covenants not available in Ontario or applying to facts of case.

As Phase 1 of a condominium project in Whitby, Ontario, WHDC constructed a residential building that was registered as Durham Condominium Corporation No. 123 ("DCC"). WHDC also constructed a recreational facility on the Phase 1 lands, which were owned by DCC. WHDC began construction of Phase 2, which was located on an adjoining parcel, and WHDC and DCC signed a reciprocal agreement, which was registered on the title to both parcels and under which each phase would have easements over the land of the other for the purposes of support and access. The reciprocal agreement also provided for sharing the use and the expenses of maintaining certain facilities, including the recreational facilities. The reciprocal agreement provided that its provisions were intended to run with the land and were to bind and enure to the benefit of successors of WHDC and DCC.

WHDC suffered financial difficulties, and the Phase 2 lands were sold under power of sale and then subsequently acquired by Amberwood Investments Limited ("AIL"). No building was ever constructed on the Phase 2 lands. After paying its share of expenses for a few months, AIL refused to continue to make payments, and DCC registered a caution and issued power of sale proceedings in accordance with the reciprocal agreement. AIL responded with an application to set aside the caution and for a declaration, amongst other things, that it was not bound by the covenant to pay expenses because it was a positive covenant that did not bind a successor in title.

On AIL's application, Stinson J. held that he was bound by stare decisis to apply the rule in Austerberry v. Oldham that a positive covenant does not run with the land and that absent legislative reform, two exceptions to this rule, (1) the benefit and burden exception from Halsall v. Brizell and (2) the conditional grant of easement exception, were not available, although these exceptions would otherwise have applied to the facts of the case. DCC appealed.

Held, the appeal should be dismissed with costs.

Charron J.A. (Cronk J.A. concurring): Although much criticized, and the subject of calls for reform in Ontario and elsewhere, the rule that positive covenants do not run with freehold land was settled law in Ontario. It was beyond the proper role of the courts to carry out any reform of this general rule. The sheer number and complexity of issues that would have to be addressed to reform the law made it clear that any significant change required a legislative initiative. A case-by-case approach would create unmanageable confusion and uncertainty in the law. This conclusion, however, left open DCC's arguments that the benefit and burden exception or the conditional grant exception to the general rule about positive covenants could be adopted in Ontario and, if adopted, was available on the facts of this case. However, the case law did not support Stinson J.'s finding that the benefit and burden exception has been clearly adopted by the English courts. Further, his conclusion that the benefit and burden exception would apply to the facts was not consonant with English jurisprudence. That AIL had received certain benefits upon obtaining title to the Phase 2 land was not by itself sufficient. Insofar as the easements over the Phase 1 lands were concerned, DCC had not established any correlation between those benefits and the burden of the positive covenant. Insofar as the benefits related to the recreational facilities, DCC had not shown any use or enjoyment of the benefit by AIL. Therefore, if the benefit and burden exception were adopted in Ontario, it was not applicable. In any event, having regard to the uncertainties and many frailties of the existing common law in England in this area of the law, it would be inadvisable to adopt the benefit and burden exception in Ontario. For essentially the same reasons, AIL's argument relying on the second exception also failed.

MacPherson J.A. (dissenting): Both the benefit-burden and conditional grant exceptions to the rule in Austerberry v. Corporation of Oldham could and should be adopted into the law of Ontario and both exceptions applied to the facts of this case. The rule in Austerberry was a common law rule created by the courts, and there was no reason why the courts should not regard it as their function to assess in a principled way whether exceptions need to be developed to deal with unforeseen situations or cases where the strict application of the rule would lead to injustice. That process was the essence of the common law. The adoption of the exceptions would result in incremental change with consequences capable of assessment. In the immediate case, the intentions of the original contracting parties and the wording of the agreement were clear: a regime of reciprocal easements and other benefits and cost sharing was established. AIL, a successor in title to one of the contracting parties, chose, with full knowledge of the clear terms of the original agreement, to accept and utilize the benefits of the agreement. It would be unjust to permit AIL to ignore the reciprocal burdens that the agreement imposed on it.

APPEAL from a judgment of Stinson J. (2000), 2000 ONSC 22699, 50 O.R. (3d) 670, 191 D.L.R. (4th) 210 (S.C.J.) on an application for a declaration.

Cases referred to Austerberry v. Oldham Corpn. (1885), 29 Ch. D. 750, 55 L.J. Ch. 633, 53 L.T. 543, 45 J.P. 532, 33 W.R. 807, 1 T.L.R. 473 (C.A.); E.R. Ives Investments Ltd. v. High, [1967] 1 All E.R. 504, [1967] 2 Q.B. 379, [1967] 2 W.L.R. 789, 110 Sol. Jo. 963 (C.A.); Ellenborough Park, Re, [1955] 3 All E.R. 667, [1956] Ch. 153, [1955] 3 W.L.R. 892, 99 Sol. Jo. 870 (C.A.); Elliston v. Reacher, [1908] 2 Ch. 665, [1908-10] All E.R. Rep. 612, 78 L.J. Ch. 87, 99 L.T. 701 (C.A.); Friedmann Equity Developments Inc. v. Final Note Ltd., 2000 SCC 34, [2000] 1 S.C.R. 842, 48 O.R. (3d) 800n, 188 D.L.R. (4th) 269, 255 N.R. 80, 34 R.P.R. (3d) 159, 7 B.L.R. (3d) 153; Government Insurance Office (N.S.W.) v. K.A. Reed Services Pty. Ltd., [1988] V.R. 829 (Vict. S.C.); Halsall v. Brizell, [1957] 1 All E.R. 371, [1957] Ch. 169, 2 W.L.R. 123, 101 Sol. Jo. 88; Haywood v. Brunswick Building Society (1881), 8 Q.B.D. 403, 51 L.J.Q.B. 73, 45 L.T. 699, 46 J.P. 356, 30 W.R. 299 (C.A.); Keppell v. Bailey (1834), 2 My. & K. 517, 39 E.R. 1042, Coop temp Brough 298, [1824-34] All E.R. Rep. 10 (L.C.); Parkinson v. Reid, 1966 SCC 4, [1966] S.C.R. 162, 56 D.L.R. (2d) 315; R. v. York (Township), Ex Parte 125 Varsity Rd. Ltd., 1960 ONCA 146, [1960] O.R. 238, 23 D.L.R. (2d) 465 (C.A.); Rhone v. Stephens, [1994] 2 All E.R. 65, [1994] 2 W.L.R. 429, 138 Sol. Jo. L.B. 77, [1994] 37 E.G. 151, [1994] N.L.J.R. 460, [1994] 2 A.C. 310, [1994] E.G.C.S. 50, [1994] N.P.C. 43 (H.L.); Spencer's Case (1583), 5 Co. Rep. 16a, [1558-1774] All E.R. Rep. 68, 77 E.R. 72; Thamesmead (Town) v. Allotey (1998), 37 E.G. 161; Tito v. Waddell (No. 2), [1977] 3 All E.R. 129, [1977] Ch. 106, [1977] 2 W.L.R. 496, 121 Sol. Jo. 104; Tulk v. Moxhay (1848), 2 Ph. 774, [1843-60] All E.R. Rep. 9, 1 H. & Tw. 105, 18 L.J. Ch. 83, 13 L.T.O.S. 21, 13 Jur. 89, 41 E.R. 1143 (L.C.)

Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 14.05

Authorities referred to Aughterson, E.P., "In Defence of the Benefit and Burden Principle" (1991), 65 A.L.J. 319 Bradbrook, A.J., S.V. MacCallum and A.P. Moore, Australian Real Property Law, 2nd ed. (Sydney: Law Book Co., 1997) Cardozo, B.N., The Nature of Judicial Process (New Haven: Yale University Press, 1921) Crane, F.R., 21 [1957] The Conveyancer & Property Lawyer 160 Davis, C., "The Principle of Benefit and Burden" (1998), 57 C.L.J. 522 English Law Commission, Transfer of Land: The Law of Positive and Restrictive Covenants, Law Com. No. 127, 1984 Gillese, E.E., Property Law, 2nd ed. (Toronto: Emond Montgomery, 1990) Gravells, N.P., "Enforcement of Positive Covenants Affecting Freehold Land" (1994), 110 L.Q.R. 346 Gray, K., The Elements of Land Law, 2nd ed. (London: Butterworths, 1993) Halsbury's Law of England, 4th ed., Vol. 14 (London: Butterworths, 1975) Megarry, R., and W. Wade, Law of Real Property, 6th ed. (London: Sweet & Maxwell, 2000) Ontario Law Reform Commission, Report on Covenants Affecting Freehold Land (Ontario, 1989) Property Law and Equity Reform Committee, Report on Positive Covenants Affecting Land (New Zealand, 1985) Ziff, B.H., "Positive Covenants Running With Land: A Castaway on Ocean Island?" (1989), 27 Alta. L.R. 354 -- , Principles of Property Law, 3rd ed. (Toronto: Carswell, 2000)

Patricia M. Conway, for appellant (Durham Condominium Corp. No. 123). Alan S. Price and Peter A. Simm, for respondents (Amberwood Investments Ltd. et al.).

[1] CHARRON J.A. (CRONK J.A. concurring): -- The sole issue on this appeal is whether a covenant to pay certain interim expenses contained in a reciprocal easement and cost sharing agreement (the "Reciprocal Agreement") between owners of adjoining parcels of land is enforceable against the successor in title to the covenantor. Stinson J. ruled that the covenant, being a positive covenant, does not run with the land and that, consequently, it was not enforceable against the respondents, Amberwood Investments Limited and 1018898 Ontario Inc. ("Amberwood"), as successors in title to the original covenantor. The appellant, Durham Condominium Corporation No. 123 ("DCC 123"), who is the original covenantee under the Reciprocal Agreement, appeals from this decision.

A. The Facts

[2] Amberwood and DCC 123 are the registered owners of adjoining parcels of land in Whitby, Ontario. Originally, these two parcels were one, owned by a developer called WHDC Harbour Development Corporation ("WHDC").

[3] WHDC intended to build two condominium high-rise residential buildings on the land, in two phases. The first phase, Phase 1, was completed and as a result, DCC 123 was registered on March 20, 1992. This registration divided the land into two parcels. WHDC started to build the Phase 2 condominium but, after putting in its foundation, ran into financial difficulties.

[4] It was WHDC's intention that the two-phased project would share certain facilities and expenses, and that each phase would have easements over the land of the other for the purposes of support and access. Particulars of these various rights and obligations were set out in the Reciprocal Agreement between WHDC and DCC 123, dated March 20, 1992, which applied to and was registered on the title of both parcels.

[5] The original lender for the project was the Royal Bank of Canada ("RBC"). It advanced $50 million in debenture financing to WHDC in May 1990, secured by a mortgage over both parcels of land. After DCC 123 was registered in 1992, RBC's mortgage on DCC 123's parcel was discharged. RBC retained the mortgage on the adjoining parcel. In 1995, RBC assigned this mortgage to Paarl Construction Inc. ("Paarl"), which later sold the second parcel under power of sale to The Shores of Whitby Land Corporation. This purchase was financed by Amberwood and secured by a first mortgage.

[6] In October 1998, The Shores of Whitby Land Corporation defaulted under the mortgage held by Amberwood and, in consequence, quitclaimed its interest in the second parcel to Amberwood. DCC 123 was informed of this transfer the following month. As of the date of this application, no building had been constructed on the Phase 2 lands.

[7] The developer's plan was for both condominiums to share a recreational facility. That facility has been constructed and is located within DCC 123, and is owned by DCC 123 and Amberwood.

[8] The Reciprocal Agreement provides, amongst other things, for the sharing of the cost of maintaining certain shared services and facilities, including the recreational facility. It required WHDC to pay certain interim expenses until the second condominium was built and registered. These interim expenses are the subject-matter of this application. They are outlined in s. 2.9:

Section 2.9 - Interim Costs

The parties agree that until completion of the building comprising Condominium 2, Phase I Condominium Corporation's [DCC 123's] share of certain operating expenses contained in its budget will be greater than they will be after completion of the building comprising Condominium 2. Accordingly, the Owner [WHDC] agrees until the date of registration of Condominium 2, to pay the Proportionate Share of the Phase II Condominium Corporation for the following items listed in the budget of the Phase I Condominium Corporation:

(a) Water Treatment; and

(b) Air Conditioner Maintenance.

The Owner further agrees, until the Transfer Date, to pay 35.417 [per cent] of the costs of maintaining one full time security guard on the site.

[9] The Reciprocal Agreement further contains general provisions that include the following:

Section 13.1 - Provisions Run with the Land

(b) The parties hereto hereby acknowledge and agree that the Easements, rights and provisions as set forth in this Agreement establish a basis for mutual and reciprocal use and enjoyment of such Easements, rights and provisions and as an integral and material consideration for the continuing right to such use and enjoyment, each party hereto does hereby accept, agree to assume the burden of, and to be bound by each and every of the covenants entered into by them in this Agreement.

(c) The provisions of this Agreement are intended to run with the real property benefitted and burdened thereby, specifically, the Phase 1 Lands, the Phase 2 Lands and the Common Units and except as may otherwise be specifically provided, shall bind and enure to the benefit of the respective successors in title thereof.

[10] After WHDC ran into financial difficulty, it stopped paying its proportionate share of the interim expenses. Arrears accumulated. Paarl, as assignee of the RBC mortgage, refused to make the payments and DCC 123 registered a lien against the Phase 2 lands. When The Shores of Whitby Land Corporation purchased the lands, the arrears were paid. However, when Amberwood assumed ownership of the lands through the quitclaim deed, it paid the interim expenses for a few months and then refused to continue the payments. Amberwood's share of the expenses is estimated at $4,225 a month, or $50,700 a year. When the expenses remained unpaid by October 1999, DCC 123 registered a caution and issued notice of sale proceedings in accordance with the Reciprocal Agreement.

B. The Decision Under Appeal

[11] Amberwood ultimately brought this application pursuant to rule 14.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 seeking an order setting aside the caution registered by DCC 123 and a declaration that it was not bound by any of the terms of the Reciprocal Agreement. However, it was conceded at the hearing before Stinson J. and on this appeal that Amberwood, as subsequent owner of the Phase 2 lands who acquired title after the Reciprocal Agreement was registered, was bound by the negative covenants and the easements contained in the Reciprocal Agreement and was entitled to the benefit of the easements over the DCC 123's Phase 1 lands. It was also common ground between the parties that the original parties to the Reciprocal Agreement intended that all covenants should run with the land, including the interim expenses provision. The sole question on the application was whether the covenant to pay interim expenses should be treated differently, regardless of the original parties' intention.

[12] The applications judge held that the covenant to pay interim expenses is an affirmative obligation that falls within the definition of a positive covenant. Neither party takes issue with this finding. He also held that it was settled law that obligations of this kind do not run with the land either at law or in equity, despite the contracting parties' express intentions to the contrary. Hence, a successor in title to the original covenantor is not bound by the terms of any positive covenants contained in the original agreement to which he was not a party.

[13] The applications judge noted the well-recognized difficulties that may arise from a rigid application of this rule and the recommendations for reform made by the Ontario Law Reform Commission ("OLRC") in its 1989 Report on Covenants Affecting Freehold Land (the "1989 Report"). The applications judge referred to the methods that have been developed over time in England to avoid or circumvent the application of this potentially problematic rule.

[14] It was DCC 123's contention that two of those methods or exceptions to the rule that positive covenants do not run with the land were applicable to this case: first, the benefit and burden doctrine from Halsall v. Brizell, [1957] 1 All E.R. 371, 2 W.L.R. 123; and second, the conditional grant of easement. It was argued, with respect to the first "exception", that a person who claims the benefit of a deed must also take it subject to its burdens. It was further argued, with respect to the second "exception", that where the grant of a benefit or easement in a conveyance of land is conditional on assuming a positive obligation, the obligation is binding on the person who takes the grant. It was DCC 123's position that, on the facts of this case, Amberwood was bound by the terms of the positive covenant under either exception.

[15] The applications judge agreed with DCC 123's position. He held that the two methods relied upon by DCC 123 were clearly adopted in English law and that both of those exceptions would apply to the facts of this case. He concluded, however, that, absent legislative reform or endorsement of the English exceptions by an appellate court, he was bound by the principle of stare decisis to follow the established rule that positive covenants do not run with the land. Consequently, he granted Amberwood's application, declared that it was not bound to pay the interim expenses, and set aside the caution and notice of sale registered against Amberwood's title to the Phase 2 lands.

[16] DCC 123 appealed the decision on the sole ground that the applications judge erred in finding that he was precluded by the doctrine of stare decisis from adopting the applicable English law. In response, Amberwood conceded that no precedent, binding on Stinson J. or on this court, precludes the adoption of the English exceptions. However, Amberwood argued, first, that this court, for a number of reasons, should not adopt the English exceptions and second, that even if any such exception was adopted into Ontario common law, it was not applicable to the present case.

C. Analysis

(1) Analysis in a nutshell

[17] The rule that positive covenants do not run with the land has been a settled principle of the English common law for well over a century and it is undisputed that it has clearly been adopted in Canada: Parkinson v. Reid, 1966 SCC 4, [1966] S.C.R. 162, 56 D.L.R. (2d) 315. It appears to be equally undisputed that the rule at times causes inconvenience, that its application in some cases may even result in unfairness, and that the present state of the law should be modified to meet the needs of modern conveyancing. However, it is my view that the call for reform is not one for the courts to answer but for the legislature. Any change in the law in this area could have complex and far- reaching effects that cannot be accurately assessed on a case-by-case basis. The need to preserve certainty in commercial and property transactions requires that any meaningful reform be achieved by legislation that can be drafted with careful regard to the consequences.

[18] Therefore, since positive covenants do not run with the land, Amberwood is not bound by the positive covenant to pay the interim expenses under the Reciprocal Agreement solely by virtue of having acquired the Phase 2 lands with notice of its terms. The question remains whether Amberwood is liable to pay the expenses under some other recognized legal principle.

[19] First, DCC 123 places reliance on the doctrine of benefit and burden in Halsall v. Brizell as a method of avoiding the application of the rule. The nature and scope of this doctrine will be discussed more fully later in these reasons. Suffice it to say for the purpose of this overview that, in my view, the benefit and burden doctrine is not as wide or as settled in English law as contended by DCC 123. Furthermore, the adoption of this doctrine as a recognized exception to the rule in the common law of this province, in much the same way as the abolition of the rule itself, would have complex, far-reaching and uncertain ramifications that cannot be adequately addressed on a case-by-case basis.

[20] The second method relied upon by DCC 123 is the conditional grant of easement. The question whether or not a provision in a conveyance is a conditional grant essentially turns on the construction of the relevant instrument, in this case the Reciprocal Agreement. In my view, there is no link between the easements conferred under the Reciprocal Agreement and the positive covenant to pay interim expenses so as to create a conditional grant within the meaning of this principle. The general clause of mutuality and reciprocity of easements, rights and provisions contained in the Reciprocal Agreement cannot be relied upon by DCC 123 to convert all positive obligations into conditional grants of easement so as to defeat the rule. As stated earlier, the rule that positive covenants do not run with the land applies despite the parties' express intention to the contrary. Hence, the applications judge erred in finding that, by virtue of s. 13.1(b) of the Reciprocal Agreement, the grant of easements and benefits under s. 2.3 and Article 3 was conditional upon payment of the interim expenses set out under s. 2.9.

[21] In the result, for different reasons than those of the applications judge, I am of the view that he was nonetheless correct in granting Amberwood's application, and I would dismiss the appeal.

(2) Introduction

[22] In a relatively recent decision, Rhone v. Stephens, [1994] 2 All E.R. 65, [1994] 2 W.L.R. 429, the House of Lords considered the question of the enforceability of positive covenants between owners of freehold estates including, in particular, the rule that positive covenants do not run with the land. The rule is commonly referred to as the rule in Austerberry v. Oldham Corpn. (1885), 29 Ch. D. 750, 55 L.J. Ch. 633 (C.A.). It is unfortunate that this case was not brought to the attention of the applications judge because the judgment in Rhone v. Stephens provides a convenient framework for discussion of the issues raised in this case. Lord Templeman, in his reasons delivered on behalf of the court, set out a useful and succinct review of the law related to covenants, including the different rules governing restrictive and positive covenants, its historical development, and its underlying rationale. Lord Templeman also acknowledged the severe criticism of the present state of the law on positive covenants and the call for legislative reform made by the Law Commission in England. He also considered, and declined, the invitation to abolish the rule in Austerberry, finding that any need for reform was a matter for Parliament. Finally, he considered and rejected the argument that the rule in Austerberry had been blunted by the benefit and burden principle. Hence, many of the same issues that are raised by the parties in this case were before the House of Lords in Rhone v. Stephens. It may be useful to set out the facts in Rhone v. Stephens before reviewing the court's analysis of the legal issues.

[23] In 1960, the owner of a house and adjoining cottage, known as Walford House, sold the cottage, since known as Walford Cottage. Walford House and Walford Cottage were under the same roof. The vendor covenanted for himself and his successors in title as owners of Walford House to maintain that part of the roof which was above Walford Cottage in good condition to the reasonable satisfaction of the purchasers and their successors in title. The conveyance also had the effect of conferring and confirming on each property the right to be supported by the other. After 1960, both properties were sold: Walford Cottage to the plaintiffs and Walford House to the defendant.

[24] In 1986, the plaintiffs brought an action against the defendant claiming that the roof above Walford Cottage was leaking and that the defendant was in breach of the covenant to repair the roof. The trial judge found the defendant liable both in nuisance and on the covenant. He based his finding of liability on the covenant on the principle of benefit and burden. On appeal by the defendant, the Court of Appeal reversed the trial judge's decision on both grounds. The Court of Appeal found that, contrary to the finding of the trial judge, the plaintiffs were in fact owners of the roof over Walford Cottage and therefore had no cause of action in nuisance against the defendant owner of Walford House. The Court of Appeal also rejected the plaintiffs' claim that the defendant was bound by the positive covenant to repair. On further appeal to the House of Lords by the plaintiffs, the appeal was dismissed. The reasons of the House of Lords, for the most part, are apposite to this case. Hence, I will make extensive reference to the analysis in Rhone v. Stephens.

(3) The common law relating to covenants affecting land

[25] The House of Lords reiterated the foundational principle underlying the law relating to covenants affecting land (at p. 67 All E.R.):

At common law a person cannot be made liable upon a contract unless he was a party to it. In Cox v. Bishop (1857) 8 De GM & G 815, 44 ER 604 a lease was assigned to a man of straw and it was held that the covenants in the lease could not be enforced against an equitable assignee of the lease who had entered into possession. The covenants were not enforceable because there was no privity of contract or estate between the lessee and the assignee.

[26] The House of Lords then noted that the rigours of the common law, which do not allow covenants to be enforced by and against successors in title, were relaxed, first by the doctrines laid down in Spencer's Case (1583), 5 Co. Rep. 16a, [1558-1774] All E.R. Rep. 68, and subsequently by statutory extensions of those doctrines, resulting in different treatment being afforded at law to leaseholds. As a result of this relaxation of the rule, as between landlord and tenant, both the burden and the benefit of a covenant, which touches or concerns the land demised and is not merely collateral, run at law with the reversion and the term of the lease whether the covenant be positive or restrictive. However, as between persons interested in land other than as landlord and tenant, the law remained as established in Austerberry. At law, the benefit of a covenant may run with the land, but not the burden.

[27] The different treatment afforded to leaseholds over time was not relevant to the case in Rhone v. Stephens, hence the rationale behind it was not discussed by Lord Templeman. That aspect of the law also goes beyond the scope of the question to be decided by this court. However, for the sake of completeness, a brief reference may be made to the decision in Keppell v. Bailey (1834), 2 My. & K. 517, 39 E.R. 1042, [1824-34] All E.R. Rep. 10 (L.C.), where the court expressed the reasoning for the different treatment afforded to leasehold interests. This reasoning provides some insight into the rationale behind the rule relating to positive covenants. The court in Keppell v. Bailey expressed the view that while no harm arises from giving everyone the fullest latitude in binding themselves and their representatives in contract, "great detriment would arise and much confusion of rights if parties were allowed to invent new modes of holding and enjoying real property, and to impress upon their lands and tenements a peculiar character, which should follow them into all hands, however remote" (at p. 1049 E.R., pp. 10-11 All E.R. Rep.). The court was of the view, however, that the matter was very different in the case of covenants in a lease where the lessor or his assignees continue in the reversion while the term of the lease lasts and retain control over the land. Hence, in the case of leaseholds, as opposed to freeholds, the court held that it was not at all inconsistent with the nature of property that positive covenants affecting the land bind those who take the term of the leasehold by assignment.

[28] Hence, it would appear that the need for certainty in the ascertainment of title and its incidental rights served to maintain the traditional limits to the parties' contractual freedom in the case of freehold estates. I now return to the analysis in Rhone v. Stephens.

[29] Despite this relaxation of the rigours of the common law with respect to leaseholds, Lord Templeman noted that the rule in Austerberry continued to apply with respect to freeholds. Hence, the rule had the following effect on the present owners of Walford House and Walford Cottage (at p. 68 All E.R.):

Thus cl 3 of the 1960 conveyance [the positive covenant], despite its express terms, did not confer on the owner for the time being of Walford Cottage the right at common law to compel the owner for the time being of Walford House to repair the roof or to obtain damages for breach of the covenant to repair.

[30] The plaintiffs in Rhone v. Stephens argued nonetheless that equity, if not the common law, compelled the owner of Walford House to comply with the covenant to repair the roof or to pay damages instead. This argument was rejected. Lord Templeman reiterated the principle that "equity supplements but does not contradict the common law" (at p. 68 All E.R.). He explained how this principle led to the enforcement of restrictive covenants in equity, in the seminal case of Tulk v. Moxhay (1848), 2 Ph. 774, [1843-60] All E.R. Rep. 9 (L.C.), and why the equitable rule established in that case cannot be extended so as to enforce positive covenants (at pp. 68-69 All E.R.):

My Lords, equity supplements but does not contradict the common law. When freehold land is conveyed without restriction, the conveyance confers on the purchaser the right to do with the land as he pleases provided that he does not interfere with the rights of others or infringe statutory restrictions. The conveyance may however impose restrictions which, in favour of the covenantee, deprive the purchaser of some of the rights inherent in the ownership of unrestricted land. In Tulk v. Moxhay (1848), 2 Ph 774, [1843-60] All ER Rep 9 a purchaser of land covenanted that no buildings would be erected on Leicester Square. A subsequent purchaser of Leicester Square was restrained from building. The conveyance to the original purchaser deprived him and every subsequent purchaser taking with notice of the covenant of the right, otherwise part and parcel of the freehold, to develop the square by the construction of buildings. Equity does not contradict the common law by enforcing a restrictive covenant against a successor in title of the covenantor but prevents the successor from exercising a right which he never acquired. Equity did not allow the owner of Leicester Square to build because the owner never acquired the right to build without the consent of the persons (if any) from time to time entitled to the benefit of the covenant against building. In Tulk v Moxhay, 2 Ph 774 at 777-778, [1843-60] All ER Rep 9 at 11 the judgment of Lord Cottenham LC contained the following passage:

It is said, that the covenant being one which does not run with the land, this Court cannot enforce it; but the question is, not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased.

Equity can thus prevent or punish the breach of a negative covenant which restricts the user of land or the exercise of other rights in connection with land. Restrictive covenants deprive an owner of a right which he could otherwise exercise. Equity cannot compel an owner to comply with a positive covenant entered into by his predecessors in title without flatly contradicting the common law rule that a person cannot be made liable upon a contract unless he was a party to it. Enforcement of a positive covenant lies in contract; a positive covenant compels an owner to exercise his rights. Enforcement of a negative covenant lies in property; a negative covenant deprives the owner of a right over property.

(Emphasis added)

[31] Hence, it was reasoned that the enforcement of a negative covenant in equity did not contravene the common law rule of privity of contract because, in essence, equity was simply giving effect to a legal right whose scope was restricted by the covenant. As Lord Templeman noted in Rhone v. Stephens, there was some suggestion in the jurisprudence following Tulk v. Moxhay that any covenant affecting land was likewise enforceable in equity provided that the owner of the land had notice of the covenant prior to his purchase. However, this extension of the principle did not survive the decision of the Court of Appeal in Haywood v. Brunswick Building Society (1881), 8 Q.B.D. 403, 51 L.J.Q.B. 73 (Eng. Q.B.). The Court of Appeal in Haywood decided that, in the absence of privity of contract, it would not extend the doctrine of Tulk v. Moxhay to affirmative covenants compelling a man to lay out money or do any other act of an active character. Equity will intervene only where there is a negative covenant, expressed or implied.

[32] Lord Templeman concluded his review of the existing state of the law as follows (at p. 71 All E.R.):

For over 100 years it has been clear and accepted law that equity will enforce negative covenants against freehold land but has no power to enforce positive covenants against successors in title of the land. To enforce a positive covenant would be to enforce a personal obligation against a person who has not covenanted. To enforce negative covenants is only to treat the land as subject to a restriction.

[33] It is common ground between the parties that this is also the settled law in Ontario. Positive covenants do not run with freehold land, either at law or in equity. Hence, consonant with the result in Rhone v. Stephens, Amberwood is not bound to pay the interim expenses contained in the Reciprocal Agreement simply by reason of having acquired the land with notice of the covenant.

(4) The call for reform

[34] The need for reform in this area of the law, and the different approaches that should be adopted to effect it, informed much of the argument advanced by the parties on this appeal. The determinative issues on this appeal were framed by the parties in terms of the English "exceptions" to the rule in Austerberry and their potential application to this case. DCC 123 took the position that the English exceptions were well established and it urged this court to adopt these principles as an incremental and much needed change in the law. Amberwood, on the other hand, took the position that the existence and scope of each exception was a matter of much controversy in England and in other common law jurisdictions and that, even if either exception was found to apply to the facts of this case, any reform in this area of the law was a matter for the Legislature and not the courts.

[35] Hence, before dealing with the particular issues raised by the parties, it may be useful to briefly describe the need for reform in this area of the law, as identified by the OLRC and like bodies in some other common law jurisdictions.

[36] In its 1989 Report on Covenants Affecting Freehold Land, the OLRC dealt with both positive and restrictive covenants affecting land, other than those between landlord and tenant. It defined a positive covenant as "one that requires a person to do something on his or her land" (p. 1 Executive Summary).

[37] In an attempt to determine the rationale behind the rule that positive covenants do not run with the land, the OLRC made reference to the decision in Keppell v. Bailey, referred to earlier, and deduced from this decision that there were two related rationales. First, "such covenants would tend to render land inalienable" and second, "persons dealing subsequently with the land would have great difficulty in ascertaining the existence of such covenants, because they do not normally have a physical manifestation" (at p. 21).

[38] The OLRC rejected both rationales as inapplicable to the reality of conveyancing in Ontario. With respect to the concern for inalienability, the OLRC observed that "it has now been generally recognized . . . that [positive covenants] do not tend to render land inalienable. On the contrary, positive and negative covenants tend to enhance alienability since they operate to protect the amenities of neighbourhoods and the competitiveness of businesses" (at pp. 100-01). With respect to the concern for the difficulty in ascertaining the existence of such covenants, the OLRC stated that it "is not now, and was not then, an obstacle in Ontario" (at p. 22) given Ontario's land registration system, a system that did not generally exist in England at the time of the Keppell decision.

[39] The OLRC further commented on the relatively common use of affirmative covenants despite the existing rule, and on some of the difficulties that have arisen as a result. Indeed, this case provides an example of the kind of difficulty described by the OLRC (at p. 101):

As a practical matter, the use of affirmative covenants is relatively common, particularly in connection with land developments. Positive covenants, for example, are often contained in subdivision agreements, entered into between developers and municipalities. In this context, however, positive covenants create few problems, since they have the sanction of statute. The situation is otherwise, however, with respect to covenants given by builders to the subdivider. Frequently these include positive obligations, for example, with respect to paving, sodding, and the installation of street lights. Even though builders' covenants are usually limited in time to ten or twelve years, the fact that the burden of a positive covenant does not survive an assignment of the land by the builder can cause difficulties. Similarly, covenants are often imposed upon the ultimate purchasers, either by the subdivider or by the builder. Again, they often contain positive as well as negative obligations. Once again, however, even though these obligations are usually restricted in time to ten or twelve years, the fact that the burden of a positive covenant cannot run with the land may create difficulties.

Finally, we note that the running of the burden of positive covenants is not a phenomenon entirely unknown to the law. Since privity of estate exists between a lessor and a lessee, and their respective assigns, the burden of certain leasehold covenants will run, either with the term of the lease or with the reversion, irrespective of whether the obligation is positive or negative.

In addition, the burden of positive covenants are permitted to run in the context of condominiums, which are governed in Ontario by specific legislation. However, there are many situations in which condominium legislation might not be appropriate - for example, in the case of a duplex, or other building having more than one owner, that is not large enough to be made into a statutory condominium. Like the owners of condominium units, the owners of the several units in such buildings might wish to enter into positive covenants that run with the land, particularly respecting such matters, for example, as the maintenance of common walls, decoration and landscaping.

[40] In light of the absence of any applicable rationale for the rule and of the difficulties it posed, the OLRC was of the view that the law required reform (at pp. 101-02):

We have reached the conclusion that the present law, which prohibits the running of the burden of positive covenants upon a transfer of freehold land, operates to defeat the legitimate expectations of the parties. In our view, there can be no principled rationale for a rule that would preclude neighbours from agreeing, for example, to maintain a boundary fence, or, to keep certain drains clear, such that the covenant would run with the land. Nor is it justifiable, in our view, that, in a property development providing for parks, open spaces, and other amenities, obligations to pay for the maintenance of these amenities cannot be enforced against the successors of the original contracting parties. In addition, to the extent that a variety of methods have been developed to circumvent the undesirable effect of the present law, it has been productive of much uncertainty and confusion. For the foregoing reasons, the Commission recommends that the law should be reformed to permit the burden of affirmative obligations to run upon a transfer of freehold land.

[41] The OLRC further concluded that the present law of restrictive covenants was also in need of reform because it is unduly complex and uncertain. Hence, the OLRC was of the view that the need for reform arose both from the uncertain and complex state of the law with respect to restrictive covenants, and the existing gap with respect to positive covenants.

[42] A similar need for reform has been identified in the United Kingdom and in New Zealand. Recommendations were made by the Committee on Positive Covenants Affecting Land in the United Kingdom in a Report presented to the British Parliament in 1965 and by the Law Commission in another Report laid before the British Parliament in 1984 entitled Transfer of Land: The Law of Positive and Restrictive Covenants. Recommendations for reform were made in New Zealand by the Property Law and Equity Reform Committee in a document named Report on Positive Covenants Affecting Land which was presented to the Minister of Justice in 1985.

[43] The OLRC proceeded to make specific recommendations for reform. It expressed the view that it would not be sufficient simply to import positive covenants into the common law of restrictive covenants because that law "is inherently incapable of providing adequately for positive obligations" (at p. 104) and, in any event, the law on restrictive covenants itself is in need of reform. The OLRC therefore recommended that a new type of servitude should be created that would encompass both positive and negative obligations and would provide for the differing requirements of each. A number of issues are then discussed in the 1989 Report.

[44] In my view, the sheer number and complexity of issues that would have to be considered in order to address the various concerns relating to such reform of the law make it abundantly clear that any significant change requires a legislative initiative. A case-by-case approach would create unmanageable confusion and uncertainty in the law. By way of illustration, I note some of the questions discussed in the OLRC 1989 Report:

-- what should the new "land obligation" encompass

-- whether land obligations should be divided into "neighbour obligations" and "development obligations" as recommended by the Law Commission in England

-- whether a land obligation should be appurtenant to an estate in land or to the land itself and whether a statutory priority provision should be implemented

-- whether land obligations should always be appurtenant to land or whether they should be permitted to exist "in gross" or independently of a dominant tenement, hence allowing for enforcement by a non-owner (e.g. a homeowners' association under a building scheme)

-- whether specific provisions should be made for development schemes and building schemes

-- who may enforce the benefit of the land obligation and who should bear the burden

-- what remedies should be available

-- what prescription period should apply

-- how land obligations should be varied or extinguished

[45] The OLRC further noted a number of consequential changes that would have to be made in the law. It is clear from this discussion that a number of amendments would have to be made to existing legislation to give effect to any new scheme that would allow positive covenants to run with the land, including amendments to the Land Titles Act, R.S.O. 1980, c. 230 (now R.S.O. 1990, c. L.5), the Registry Act, R.S.O. 1980, c. 445 (now R.S.O. 1990, c. R.20), the Conveyancing and Law of Property Act, R.S.O. 1980, c. 90 (now R.S.O. 1990, c. C.34), and the Perpetuities Act, R.S.O. 1980, c. 374 (now R.S.O. 1990, c. P.9).

[46] It may be useful at this point to return to the analysis in Rhone v. Stephens because the House of Lords made reference to a similar call for reform in England. Lord Templeman made reference to the Reports submitted to Parliament by the Law Commission, and noted that nothing had been done in response to them. In these circumstances, the court was invited to overrule the decision in Austerberry. Lord Templeman rejected this suggestion (at p. 72 All E.R.):

To do so would destroy the distinction between law and equity and to convert the rule of equity into a rule of notice. [sic] It is plain from the articles, reports and papers to which we were referred that judicial legislation to overrule the Austerberry case would create a number of difficulties, anomalies and uncertainties and affect the rights and liabilities of people who have for over 100 years bought and sold land in the knowledge, imparted at an elementary stage to every student of the law of real property, that positive covenants affecting freehold land are not directly enforceable except against the original covenantor. Parliamentary legislation to deal with the decision in the Austerberry case would require careful consideration of the consequences. Moreover, experience with leasehold tenure where positive covenants are enforceable by virtue of privity of estate has demonstrated that social injustice can be caused by logic. Parliament was obliged to intervene to prevent tenants losing their homes and being saddled with the costs of restoring to their original glory buildings which had languished through wars and economic depression for exactly 99 years.

[47] In my view, the wisdom of these observations is unassailable. Similar words of judicial restraint were echoed in R. v. York (Township), Ex Parte 125 Varsity Rd. Ltd., 1960 ONCA 146, [1960] O.R. 238, 23 D.L.R. (2d) 465 (C.A.) where this court was urged to extend the doctrine on restrictive covenants in Tulk v. Moxhay to covenants in gross, that is, to covenants existing independently of a dominant tenement. Morden J.A. stated as follows (at pp. 243-44 O.R.):

. . . it is, not only undesirable but in my opinion, too late now for this Court to return to the position as it was in 1848 and give countenance to a development of the doctrine along such substantially different lines; we ought, I think, to adhere to the greatly restricted scope of the doctrine in Tulk v. Moxhay as evidenced by the numerous decisions subsequent to that case. A restrictive covenant enforceable between persons other than the original parties is, in effect, an equitable interest in property. It is well recognized that decisions affecting real property upon the basis of which titles are passed and accepted should not lightly be disturbed; this is one branch of law which requires stability. As Middleton, J.A., said in Re Hazell (1925), 1925 ONCA 357, 57 O.L.R. 290, at p. 294

It is a well-established principle of real property law that questions such as this one, placed at rest, should not be again agitated, even if it should be shewn that the earlier decisions are not in all respects satisfactory.

[48] These principles of judicial restraint were also reiterated in Friedmann Equity Developments Inc. v. Final Note Ltd., 2000 SCC 34, [2000] 1 S.C.R. 842, 188 D.L.R. (4th) 269 where the Supreme Court of Canada considered whether the sealed contract rule should be abolished. Contrary to this case, the Supreme Court rejected the contention that the rule was in need of reform. Nonetheless, the general principles that govern judicial reform of the common law set out in the judgment of the court are entirely apposite to this case. I note some of the more relevant excerpts from the judgment of Bastarache J., writing for a unanimous court (at pp. 870-72 S.C.R., pp. 290-91 D.L.R.):

Before examining whether the criticisms raised above merit the abolition of the sealed contract rule, it is necessary to understand the principles which govern judicial reform of the common law. In the past, this Court has considered the conditions which must be present to effect a change in the common law in several cases: see, e.g., Vetrovec v. The Queen, 1982 SCC 20, [1982] 1 S.C.R. 811, 136 D.L.R. (3d) 89; Watkins v. Olafson, 1989 SCC 36, [1989] 2 S.C.R. 750, 61 D.L.R. (4th) 577; R. v. Jobidon, 1991 SCC 77, [1991] 2 S.C.R. 714; R. v. Salituro, 1991 SCC 17, [1991] 3 S.C.R. 654; R. v. B. (K.G.), 1993 SCC 116, [1993] 1 S.C.R. 740; R. v. Robinson, 1996 SCC 233, [1996] 1 S.C.R. 683, 133 D.L.R. (4th) 42; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 SCC 307, [1997] 3 S.C.R. 1210, 153 D.L.R. (4th) 385. From these cases, some general principles have emerged. A change in the common law must be necessary to keep the common law in step with the evolution of society (see, e.g., Salituro, at p. 670; Bow Valley, at para. 93), to clarify a legal principle (see Vetrovec, at p. 819), or to resolve an inconsistency (see Jobidon, at p. 733). In addition, the change should be incremental, and its consequences must be capable of assessment.

On the other hand, courts will not intervene where the proposed change will have complex and far-reaching effects, setting the law on an unknown course whose ramifications cannot be accurately measured: see Bow Valley, supra, at para. 93. The rationale for judicial restraint in making changes to the common law was expressed by McLachlin J. (as she then was) in Watkins, supra, as follows, at p. 760:

The court may not be in the best position to assess the deficiencies of the existing law, much less problems which may be associated with the changes it might make. The court has before it a single case; major changes in the law should be predicated on a wider view of how the rule will operate in the broad generality of cases. Moreover, the court may not be in a position to appreciate fully the economic and policy issues underlying the choice it is asked to make.

[49] For reasons set out earlier, it is my view that the law on positive covenants is one such area where courts should be wary of making changes to the common law. The Supreme Court of Canada also made a number of other observations that are of relevance to this case (at pp. 873-77 S.C.R., pp. 292-96 D.L.R.):

Our common law is replete with artificial rules which, although they may appear to have no underlying rationale, promote efficiency or security in commercial transactions. Such rules, in the circumstances where they apply, must be followed to create a legally recognized and enforceable right or obligation. Parties, therefore, structure their relations with these rules in mind and the rules themselves become part of commercial reality. Commercial relations may evolve in such a way that a particular rule may become unjust and cumbersome, and may no longer serve its original purpose. When the hardship which a rule causes becomes so acute and widespread that it outweighs any purpose that it may have once served, it is certainly open to a court to make an incremental change in the law. However, there must be evidence of a change in commercial reality which makes such a change in the common law necessary.

Notwithstanding my view that there has been no change in commercial reality which makes the abolition of the sealed contract rule necessary, to effect such a change could also have unwarranted, far-reaching and complex consequences both in the law of contract and in the law of property.

The abolition of the sealed contract rule would thus amount to a fundamental reform of the common law rather than an incremental change.

To abolish the sealed contract rule for the reasons that the appellant has suggested would also have the effect of creating great uncertainty both in commercial relations and in the law itself. There are many rules in contract and property law which are historical, technical and which no longer appear to have any modern day rationale. However, they remain a part of the law.

The abolition of the sealed contract rule could also have far-reaching effects on existing contractual relationships.

The abolition of the sealed contract rule would have the unfair result of creating uncertainty for those who had relied on the rule in executing their contracts. To avoid uncertainty and any unfairness to those parties who have structured their commercial relationships in accordance with the sealed contract rule, any change to the law should operate prospectively. Only the Legislature has the power to create a prospective change in the law.

In my view, the need to preserve certainty in commercial relations must be considered when a court is asked to make a change to the sealed contract rule. For example, a statement that the sealed contract rule does not apply to corporations would create uncertainty as to the potential liability of all those individuals who had corporate agents insulate them from any obligations under the contract by executing it under seal. While such uncertainty may not be as widespread as that which would result from the outright abolition of the rule, such a change in the law could still have the effect of frustrating the intentions of those parties who entered into their agreements with the understanding that the rule applied. Courts should be loath to make even smaller modifications to the sealed contract rule without clear evidence that such a change is necessary to keep in step with evolving commercial reality and that it will not have unwarranted far-reaching effects.

[50] I therefore conclude that any modification to the rule that positive covenants do not run with the land should be made by the legislature, and not by this court. Hence, Amberwood is not bound by the positive covenant to pay the interim expenses under the Reciprocal Agreement solely by virtue of having acquired the Phase 2 lands with notice of its terms. The question remains whether Amberwood is liable to pay the expenses under some other recognized legal principle.

(5) Statutory exceptions to the rule

[52] The statutory exceptions to the rule do alleviate some of the difficulties that could otherwise arise from a strict application of the common law rule. However, it is common ground between the parties that no statutory exception applies to this case so as to allow the positive covenant to run with the land.

(6) Non-statutory methods to circumvent the rule

[53] The inconvenience of the rule that the burden of a positive covenant cannot run with the land has resulted in the development of a number of methods by which its effect can be circumvented so as to obtain enforcement at law. The OLRC noted some of these methods in its 1989 Report and they are further described in Megarry and Wade, The Law of Real Property, 6th ed. (London: Sweet & Maxwell, 2000) at pp. 1006-10.

[54] The simplest and most obvious way of avoiding the rule altogether is to use a chain of covenants so as to maintain privity of contract. Indeed, if the chain had not been broken in this case by WHDC's financial difficulties, resulting in power of sale proceedings, in all likelihood the terms of the Reciprocal Agreement would have been included in any sale of the Phase 2 lands to a subsequent purchaser. Other devices, not relevant to this case, include use of a right of entry annexed to rentcharge, rights of re-entry generally, and an enlarged long lease (a long lease which can be enlarged into a fee simple under statutory power).

[55] As stated earlier, DCC 123 relies on two exceptions or methods in this case: the principle of benefit and burden, referred to as the doctrine in Halsall v. Brizell, and the conditional grant. DCC 123 maintains that these two exceptions have been recognized by English courts, that they should be adopted in this province, and that Amberwood, as present owner of the Phase 2 lands, should be held liable on the covenant to pay the interim expenses under either or both of these exceptions. I will deal with each exception in turn.

(a) The doctrine in Halsall v. Brizell

[56] The applications judge described the doctrine in Halsall v. Brizell in terms of the general underlying principle that "a person who claims the benefit of a deed must also take it subject to its burdens" (at para. 23, p. 676 O.R.). He held that this doctrine "has been clearly adopted by the English courts" (at para. 24, p. 676 O.R.). In support of this conclusion, he relied on the decision of the English Court of Appeal in E.R. Ives Investments Ltd. v. High, [1967] 1 All E.R. 504, [1967] 2 Q.B. 379 (C.A.) and on the decision of the Chancery Division in Tito v. Waddell (No. 2), [1977] 3 All E.R. 129, [1977] Ch. 106. He then noted that while the principle of benefit and burden had not been applied in Canadian law, Halsall v. Brizell had been mentioned by the Supreme Court of Canada in Parkinson v. Reid. The applications judge stated as follows (at paras. 26-27, p. 677 O.R.):

In that case the court held that the obligation to repair a stairway that had been damaged in a fire was a positive covenant that did not run with the land to bind successors in title. The original parties had agreed that a neighbour could use a wall as a party-wall so long as he agreed to keep the stairway in good repair. In obiter, Cartwright J. commented on the potential applicability of the benefit/burden doctrine to this type of scenario [at pp. 168-69 S.C.R.]:

Assuming that so long as the appellants [the successors] made use of the last-mentioned wall as a party-wall they were bound to keep the stairway in repair, they ceased to be under any such obligation when they no longer made use of the respondent's wall.

I take from this that while the general proposition that positive covenants do not run with the land remains the law in Canada, the Supreme Court might be prepared to hold that a successor who claims a benefit must also shoulder the burden, whatever its form. However, if the successor abandons its claim to the benefit, or the benefit ceases to exist, as occurred in Parkinson v. Reid, the benefit/burden doctrine from Halsall v. Brizell would not apply. To date, however, the Supreme Court has not expressly addressed this point.

[57] The applications judge then considered whether the benefit and burden principle could apply to the facts of this case. He concluded that it could, for the following reasons (at paras. 28-30, pp. 677-78 O.R.):

In determining whether the benefit/burden doctrine could operate as an exception to the rule against positive covenants in this case, it is necessary to determine whether there is a benefit flowing from DCC 123 and the Phase I condominium to Amberwood's vacant lands.

In my view, there are such benefits. First, Amberwood is part owner of the recreational and utility units in the Phase I building. Second, those units are maintained for Amberwood by DCC 123. Third, Amberwood has the benefit of security over those units. Fourth, Amberwood has the access benefits of the other easements provided for in the reciprocal agreement. Although I agree with Amberwood that these benefits may be somewhat remote or artificial and would certainly have more significance if a second condominium was actually built on the Phase II lands, I do not interpret the doctrine from Halsall as requiring a court to analyze the extent or nature of the benefit. If Amberwood chose to abandon its claim to these benefits, it would not be bound to shoulder the burden of the interim costs. In my view, the fact that Amberwood does not wish to abandon these entitlements confirms that they can be fairly and properly characterized as true benefits flowing to the successor/owner.

Consequently, I conclude that the benefit/burden doctrine from Halsall v. Brizell could apply on the facts of this case.

[58] As stated earlier, the applications judge concluded, however, that it was not open to him to adopt the doctrine in Halsall v. Brizell given the present state of the law in Canada.

[59] It is important to determine with more precision the nature and scope of the doctrine in Halsall v. Brizell and to examine the extent to which it has been adopted in English law before deciding whether it should be imported into Ontario law and, if so, whether it applies to the facts of this case.

[60] In Halsall v. Brizell, purchasers of plots on a building estate were entitled under a trust deed to use private roads and other amenities, including sewers placed under the roads, and each, on purchasing a lot, covenanted to pay a just proportion of the cost of their maintenance. A question arose whether the purchasers' successors were liable for their due contribution while they made use of the roads.

[61] Upjohn J. of the Chancery Division stated first, that a covenant in the terms of the covenant to pay the maintenance cost does not run with the land. Second, he noted that the particular provisions infringed the rule against perpetuities. Notwithstanding these difficulties, he held as follows (at p. 377 All E.R.):

It is, however, conceded to be ancient law that a man cannot take benefit under a deed without subscribing to the obligations thereunder. If authority is required for that proposition, I refer to one sentence during the argument in Elliston v. Reacher (1) ([1908] 2 Ch. 665), where Sir Herbert Cozens-Hardy, M.R., said (ibid., at p. 669):

It is laid down in Coke on Littleton, 230b, that a man who takes the benefit of a deed is bound by a condition contained in it though he does not execute it.

[62] Upjohn J. concluded that if the defendants did not desire to take the benefit of the deed, they could not be liable to contribute to the maintenance cost. However since they did desire to use the roads of the park and the other benefits created by the trust deed, they were liable to contribute to the maintenance cost pursuant to the covenant.

[63] The OLRC briefly referred to the doctrine in Halsall v. Brizell in its 1989 Report as a method of avoiding the rule (at p. 23):

A third method of avoiding the rule is to rely upon the doctrine in Halsall v. Brizell, [1957] Ch. 169, [1957] All E.R. 371. See, also, Tito v. Waddell (No. 2), [1977] Ch. 106, at 292 and 310, [1977] 3 All E.R. 129. This doctrine is based upon the old rule, relating to deeds, that a person who claims the benefit of a deed must also take it subject to the burdens. In the Halsall case, the purchasers of lots in a subdivision were entitled, under a trust deed, to use private roads and other amenities. Each purchaser covenanted to pay a share of the cost to maintain the amenities. The court held that their successors were liable to pay their share of the cost. The usefulness of the doctrine, however, is somewhat limited. It will operate only if there is a benefit to be claimed under the deed, and further, it will operate only so long as the assignee of the covenantor continues to claim that benefit.

[64] The OLRC made further reference to the doctrine in Halsall v. Brizell later in its 1989 Report when it considered the future treatment of existing covenants after the adoption of the new recommended regime of land obligations. The OLRC recommended that the existing law continue to apply for covenants already in existence, stating in reference to this doctrine -- "[w]e do not intend that this rule should be abolished" (at p. 149). However, no mention is made of the fact that this doctrine has never been adopted in Canada and no further analysis of the doctrine was contained in the 1989 Report.

[65] I note from the outset what will become clear from a review of the relevant jurisprudence that the doctrine in Halsall v. Brizell cannot simply be defined by reference to the underlying general principle "that a person who claims the benefit of a deed must also take it subject to the burdens". Indeed, if the doctrine were so wide as to obligate a successor in title to all the burdens contained in the deed simply by reason of his acceptance of the benefit of the deed, it would swallow the rule. Positive covenants would run with the land. Hence, while this general principle may have informed the reasoning underlying the concession of counsel in Halsall v. Brizell, reference must be made to later applications of the doctrine to further refine it.

[66] Before referring to the subsequent jurisprudence, it is noteworthy that the decision in Halsall v. Brizell has been the subject of much debate and criticism. A frequently published commentator on English property law, F.R. Crane, has pointed out some of the weaknesses of the decision in a case comment at 21 [1957] The Conveyancer & Property Lawyer 160. He noted that the court in Halsall v. Brizell effectively by-passed both the decision in Austerberry and the rule against perpetuities, citing as [its] only authority for doing so a brief remark by Lord Cozens-Hardy M.R. during argument in Elliston v. Reacher, [1908] 2 Ch. 665, [1908-10] All E.R. Rep. 612 (C.A.) which did not form part of the judgment. R.E. Megarry (as he then was) also pointed out the frail underpinnings of Halsall in a 1957 case comment (1957), 73 L.Q.R. 154 at pp. 155-56. He noted that the observation of Lord Cozens-Hardy M.R. in Elliston v. Reacher, relied upon by Upjohn J., provided doubtful authority for the proposition since it was simply made during the address by counsel and did not form part of the judgment. Further, the passage relied upon from Coke on Littleton confined the operation of the benefit and burden rule to a party who is specifically named in a deed but who does not execute it.

[67] The subsequent case of Tito v. Waddell (No. 2) ("Tito's case"), that has applied the doctrine in Halsall v. Brizell, is of particular relevance to DCC 123's position. Indeed, the distinction sought to be made by DCC 123 between the benefit and burden principle on the one hand, and the conditional grant on the other, stems from the judgment of Vice-Chancellor Megarry in Tito's case.

[68] Tito's case was lengthy and complex, involving a multitude of issues. However, it is not necessary for the purpose of this appeal to discuss it in any detail. The only part of the decision that is relevant to this case is Megarry V.-C.'s discussion of the doctrine in Halsall v. Brizell. Ironically, the frailty of Halsall v. Brizell was the subject of substantial analysis in the judgment. However, of particular relevance to the appellant's position is Megarry V.-C.'s identification of two aspects (amongst others) of the doctrine in Halsall v. Brizell -- the conditional grant, and what Megarry V.-C. called the "pure principle of benefit and burden". He described the first as a function of the creating instrument that in effect attaches conditions to the exercise of a right and thereby restricts the scope of the benefit itself, and the second as a general category where the benefit and burden, although arising under the same instrument, are independent of each other. He stated as follows (at p. 281 All E.R.):

(a) Conditional benefits and independent obligations. One of the most important distinctions is between what for brevity may be called conditional benefits, on the one hand, and on the other hand independent obligations. An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain burdens assumed, such as an obligation to make certain payments. Such restrictions or qualifications are an intrinsic part of the right; you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee who is bound by the burden; his successors in title are unable to take the right without also assuming the burden. The benefit and the burden have been annexed to each other ab initio, and so the benefit is only a conditional benefit. In the other class of case the right and the burden, although arising under the same instrument , are independent of each other: X grants a right to Y, and by the same instrument Y independently covenants with X to do some act. In such cases, although Y is of course bound by his covenant, questions may arise whether successors in title to Y's right can take it free from the obligations of Y's covenant, or whether they are bound by them under what for want of a better name I shall call the pure principle of benefit and burden.

[69] The two aspects of the doctrine identified by Megarry V.-C. in Tito's case must be read in the light of the subsequent decision by the House of Lords in Rhone v. Stephens. While the House of Lords accepted that conditions could be attached to the exercise of a power or a right, thereby rendering the conditions enforceable upon the exercise of the power or right, it rejected any notion of a "pure principle of benefit and burden" that would bind successors to burdens that stood independently of the right. Lord Templeman stated as follows (at p. 73 All E.R.):

Mr. Munby also sought to persuade your Lordships that the effect of the decision in the Austerberry case had been blunted by the 'pure principle of benefit and burden' distilled by Megarry V-C from the authorities in Tito v. Waddell (No 2) [1977] 3 All ER 129 at 291-292, [1977] Ch 106 at 301-303. I am not prepared to recognise the 'pure principle' that any party deriving any benefit from a conveyance must accept any burden in the same conveyance. Megarry V-C relied on the decision of Upjohn J. in Halsall v. Brizell [1957] 1 All ER 371, [1957] Ch 169. In that case the defendant's predecessor in title had been granted the right to use the estate roads and sewers and had covenanted to pay a due proportion for the maintenance of these facilities. It was held that the defendant could not exercise the rights without paying his costs of ensuring that they could be exercised. Conditions can be attached to the exercise of a power in express terms or by implication. Halsall v. Brizell was just such a case and I have no difficulty in whole- heartedly agreeing with the decision. It does not follow that any condition can be rendered enforceable by attaching it to a right nor does it follow that every burden imposed by a conveyance may be enforced by depriving the covenantor's successor in title of every benefit which he enjoyed thereunder. The condition must be relevant to the exercise of the right. In Halsall v. Brizell there were reciprocal benefits and burdens enjoyed by the users of the roads and sewers. In the present case cl 2 of the 1960 conveyance imposes reciprocal benefits and burdens of support but cl 3 which imposed an obligation to repair the roof is an independent provision. In Halsall v. Brizell the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money. In the present case the owners of Walford House could not in theory or in practice be deprived of the benefit of the mutual rights of support if they failed to repair the roof.

[70] Megarry and Wade, in their text on The Law of Real Property, at pp. 1008-10, reviewed some of the relevant jurisprudence, including the decision of the English Court of Appeal in E.R. Ives Investments Ltd. relied upon by the applications judge and Tito's case, and concluded that there must now be some doubt as to their correctness and as to the precise extent of the benefit and burden principle given the subsequent decision of the House of Lords in Rhone v. Stephens. The authors comment as follows (at pp. 1009-10):

The House of Lords has rejected any "pure" principle of benefit and burden, by which "any party deriving any benefit from a conveyance must accept any burden in the same conveyance". Although the House accepted that conditions could be attached expressly or impliedly to the exercise of a power, this was so only where the condition was "relevant to the exercise of the right". The party must, "at least in theory", be able to elect between enjoying the right and performing his obligation or renouncing the right and freeing himself of the burden. On that basis, the House held that the fact that A's roof was supported by B's property did not mean that B could enforce against A a positive covenant made by A's predecessor in title with B's to repair the roof. This approach provides little guidance as to when a party will be regarded as having a genuine choice whether or not to renounce the benefits in order to be relieved of the burdens.

The policy underlying the decision of the House seems to be to restrict the ambit of the doctrine of benefit and burden as a means of circumventing the rule that the burden of positive covenants does not run. The intention would seem to be to prompt the abolition of the rule by legislation that had been drafted with careful regard to the consequences.

[71] In the subsequent case of Thamesmead (Town) v. Allotey (1998), 37 E.G. 161, Gibson L.J., writing for the unanimous English Court of Appeal, noted several difficulties with the reasoning in Rhone v. Stephens and concluded his judgment by expressing agreement with Professor Gravells' view expressed in an article on Rhone v. Stephens at (1994) 110 L.Q.R. 346, at p. 350, that since the House of Lords has "clearly ruled out a judicial solution, it is for Parliament to provide a legislative solution".

[72] In my view, the case law does not support the applications judge's finding that the benefit and burden principle has been clearly adopted by the English courts as an exception to the rule that positive covenants do not run with the land. Indeed, had Rhone v. Stephens been brought to his attention, the applications judge undoubtedly would have held that the "pure" principle of benefit and burden, relied upon by DCC 123 in this case and identified as an aspect of the doctrine in Halsall v. Brizell by Megarry V.-C. in Tito's case, was later expressly rejected by the English courts.

[73] Further, the applications judge's conclusion that the benefit and burden principle would apply to the facts of this case is not consonant with the English jurisprudence. He concluded that Amberwood was bound by the burden of the covenant because it had received the following benefits: part ownership of the recreational and utility units in the Phase 1 building; payment by DCC 123 for the maintenance of, and security over, those units; and easements over the Phase 1 lands. However, the simple fact that Amberwood received certain benefits upon obtaining title to the Phase 2 lands is clearly not sufficient, without more, under the English common law to render it liable under the positive covenant contained in the same instrument. Insofar as the easements over the Phase 1 lands are concerned, DCC 123 has not established any correlation between those benefits and the burden of the positive covenant, so as to justify the application of the English doctrine. Insofar as the benefits related to the recreational facilities are concerned, DCC 123 has not shown any [use] or enjoyment of the benefit by Amberwood. While DCC 123 recognizes in its supplementary factum that those requirements cause difficulties in this case, it purports to resolve the issue by submitting that an "all or nothing" principle should be adopted in Ontario so as to bind Amberwood to all the terms of the Reciprocal Agreement, whether or not there is any direct link or any de facto use or enjoyment of the intended benefits. In my view, the adoption of such a wide exception would be tantamount to abolishing the rule itself. Any successor in title would be bound by the positive covenant by reason solely of its acceptance of the deed to the land.

[74] I note further, with respect to the findings of the applications judge, that whatever rights or obligations may flow from the fact that the parties are presently co-owners of the recreational facilities to which the costs are related are irrelevant to, and beyond the scope of, the present application. The co-ownership, created not by the Reciprocal Agreement but by a later conveyance between DCC 123 and one of Amberwood's predecessors in title, may well give rise to other issues that relate to the same interim costs, but it has no bearing on the question whether Amberwood is liable on the covenant contained in the Reciprocal Agreement.

[75] Therefore, I conclude that, on proper consideration of the scope of the English doctrine in Halsall v. Brizell, Amberwood would not be liable to pay the interim expenses on that basis if the exception were adopted in Ontario law. In any event, it is my view that, having regard to the uncertainties and the many frailties of the existing common law in England in this area of the law, it would be inadvisable to adopt these principles in Ontario. Indeed, a review of the English experience with the doctrine of Halsall v. Brizell, lends further support to the conclusion that any reform to the rule in Austerberry is best left to the legislature. It would appear from many of the commentaries that the English adoption of the benefit and burden exception may have created more problems than it has solved.

[76] Quite apart from the uncertainties that the adoption of the exception could create in other existing commercial relationships, it is my view that the application of the benefit and burden principle in this case could give rise to a multitude of other issues, particularly in the event of non- compliance. I pose but a few hypothetical questions by way of example. What benefits would Amberwood lose if it failed to pay the interim costs? Would it simply lose any right to use the shared facilities? Or would all the easements be extinguished? Could any or all of these benefits be revived upon paying the arrears? Could the benefits be revived at any time by payment of the arrears whether it be by Amberwood or a subsequent purchaser? Or would payment have to be made within a reasonable time? Would Amberwood be liable to lose the benefit of the land itself because it did not pay the interim costs? Are these interim costs to be paid indefinitely, even if no second tower is ever built on the Phase 2 lands?

[77] While issues of this kind are not at all remarkable in the context of a contractual dispute between parties, they do create much uncertainty when they arise by reason of a covenant that runs with the land because they affect the certainty of title. Indeed, in this case, Amberwood has sold the Phase 2 lands. How then would the subsequent purchaser's title to the lands be affected by the answer to these hypothetical questions? These questions exemplify some of the issues identified by the OLRC in its 1989 Report as matters that would need to be addressed by the Legislature under any scheme allowing for positive covenants to run with the land.

[78] For these reasons, I would not give effect to this ground of appeal.

(b) The conditional grant

[79] The applications judge also considered whether the rule that positive covenants do not run with the land was subject to the conditional grant exception in English law and whether this exception would apply to this case. He described the exception by reference to Halsbury's Laws of England [4th ed., Vol. 14 at p. 79] as follows (at para. 32, p. 678 O.R.):

If the facts establish that the granting of a benefit or easement was conditional on assuming the positive obligation, then the obligation is binding. Where the obligation is framed so as to constitute a continuing obligation upon which the grant of the easement was conditional, the obligation can be imposed as an incident of the easement itself, and not merely a liability purporting to run with the land: Halsbury's Laws of England 4th ed., Vol. 14 at p. 79.

[80] The applications judge relied on the decision of the English Court of Appeal in Re Ellenborough Park, [1955] 3 All E.R. 667, [1956] Ch. 153 (C.A.) as authority for the proposition that a positive obligation runs with the land when it forms part of an easement or benefit that is made conditional on assuming it. He also referred to Tito's case. He concluded this review of the English common law with the following observations (at para. 37, p. 679 O.R.):

Once again, this "conditional grant" approach to circumventing the rule against positive covenants flowing with the land, is an English innovation. Although there does not seem to be any Canadian law which expressly recognizes or applies the conditional grant exception, such an exception is consistent with the benefit/burden doctrine. In my view, the conditional grant exception is essentially a form of the benefit/burden doctrine. The only difference is that the burden is directly annexed to the grant of the benefit, instead of the subject of an independent covenant. The notion of a conditional grant exception is also consistent with the recognition that the ancient rule against positive covenants flowing with title has many problematic implications. Such an exception would also function to protect legitimate party expectations.

[81] The applications judge then concluded that this exception would apply to this case on the basis of article 13.1(b) of the Reciprocal Agreement. I again reproduce this general provision for convenience:

Section 13.1 - Provisions Run with the Land

(b) The parties hereto hereby acknowledge and agree that the Easements, rights and provisions as set forth in this Agreement establish a basis for mutual and reciprocal use and enjoyment of such Easements, rights and provisions and as an integral and material consideration for the continuing right to such use and enjoyment each party hereto does hereby accept, agree to assume the burden of, and to be bound by each and every of the covenants entered into by them in this Agreement.

[82] The applications judge concluded as follows (at para. 39, p. 679 O.R.):

In my view, the language of that section makes it clear that the payment of interim costs, as one of the covenants in the reciprocal agreement, was intended to be a condition upon which the other easements were conveyed. The provision does not support Amberwood's submission that the cost-sharing obligations should be viewed as distinct from the scheme for mutual easements. To the contrary, paragraph 13.1(b) seems to envision a building project in which the owners would share costs in exchange for shared access and ownership. To undermine this clear intention by severing the cost obligations from the overall deal would amount to dismantling part of an intricate, complex, and well-planned scheme, and defeating legitimate party expectations.

[83] In the result, the applications judge held that the conditional grant exception would apply to this case but that its adoption was also barred by the present state of the jurisprudence.

[84] In my view, the applications judge's observation that the "conditional grant" exception "is essentially a form of the benefit/burden doctrine" accurately describes the position taken by DCC 123 in this case and, in turn, leads me to the conclusion that this second argument must fail, essentially for the same reasons that I have rejected the first exception.

[85] I note at the outset that the principle from Halsbury's Laws of England relied upon by the applications judge [at p. 678 O.R.] seems to me to be consonant with the rule in Austerberry. I repeat it here for convenience:

(Emphasis added)

[86] Hence, as a matter of construction of the creating instrument itself, if a grant of benefit or easement is framed as conditional upon the continuing performance of a positive obligation, the positive obligation may well be enforceable, not because it would run with the land, but because the condition would serve to limit the scope of the grant itself. In effect, the law would simply be giving effect to the grant. Indeed, as discussed earlier in this judgment at paras. 30 and 31, much the same reasoning underlies the law of restrictive covenants.

[87] However, none of the grants of benefit or easement contained in the Reciprocal Agreement are framed in this way. Neither s. 2.3 nor Article 3 of the Reciprocal Agreement is expressed to be conditional or dependent upon performance of all obligations under s. 2.9. Further, it is my view that s. 13.1(b) is far too general to create a conditional grant within the meaning of the principle stated in Halsbury's Laws of England. At its highest, it can be said that the parties to the Reciprocal Agreement have attempted to write in, as a term of their agreement, essentially the same general benefit and burden principle, the adoption of which was urged upon this court as a first exception to the rule. In my view, s. 13.1(b) achieves no more, and its application would give rise to the same difficulties that I have discussed earlier. The attempt to create a contractual exception to the rule in Austerberry, while binding on the original parties to the Reciprocal Agreement, cannot displace the rule that positive covenants do not bind successors-in-title. It is undisputed in English and Canadian law that the rule that positive covenants do not run with the land governs despite any express intention to the contrary contained in the agreement. Indeed, if the applications judge was correct in his conclusion that s. 13.1(b) effectively created an exception to the rule, it would be open to anyone to simply abolish the rule at the stroke of a pen. All that would be required would be a general statement of intent that the continuing right to the use and enjoyment of all the benefits in an agreement was conditional upon the acceptance of the burden contained in any of the covenants. The recognition of such a wide exception would constitute a profound change in the law.

[88] Hence, in the circumstances of this case, I would not give effect to this second ground of appeal. I would conclude that Amberwood is not bound to pay the interim expenses on the basis of the positive covenant contained in the Reciprocal Agreement.

D. Disposition

[89] For these reasons, I would conclude that the applications judge was correct in granting Amberwood's application and I would dismiss the appeal with costs. In order to comply with the rule that now requires this court to fix costs, Amberwood is to file a bill of costs and written submissions with the court within ten days from the release of this court's decision, DCC 123 is to respond in writing within a further ten days after filing, and a reply may be submitted within five days thereafter.

MACPHERSON J.A. (dissenting): --

(1) Introduction

[90] I have had the benefit of reading the reasons of my colleague, Charron J.A. I agree with her that it would be inappropriate for this court to abolish the rule in Austerberry v. Corporation of Oldham, supra ("Austerberry"). I also agree with her that the application judge, Stinson J., erred in holding that the doctrine of stare decisis precluded him from adopting the English "exceptions" to the rule in Austerberry.

[91] However, with respect, I do not agree with my colleague's analysis or conclusions relating to the benefit- burden and conditional grant exceptions to the rule in Austerberry. In my view, both exceptions should be adopted into the law of Ontario. Their application in this case would result in the appeal being allowed.

(2) Reform of Common Law Principles and the Role of the Judiciary

[92] The application of the rule in Austerberry to the present case would require that the appeal be dismissed. Amberwood would have no obligation to pay its share of the interim costs relating to water treatment, air conditioner maintenance and an on site security guard set out in s. 2.9 of the Reciprocal Easement and Cost Sharing Agreement.

[93] The question that arises, however, is whether the rule in Austerberry is, or should be, an absolute rule or whether it should admit of exceptions? In my view, it is important to address the topic of whether the law of real property in Ontario should recognize certain qualifications on, or exceptions to, the rule in Austerberry. I say this for several reasons.

[94] First, the original historical rationales for the rule in Austerberry are simply not as relevant in Ontario in 2002 as they may have been in the United Kingdom in 1885. This point was succinctly summarized by the application judge in the present case [at p. 675 O.R.]:

The 1989 Ontario Law Reform Commission Report on Covenants Affecting Freehold Land at p. 21 considered the rule against positive covenants flowing with title and the two reasons typically advanced for its existence. First, such covenants tended to render land inalienable. Second, persons dealing subsequently with the land would have great difficulty ascertaining the existence of such covenants, because they do not normally have a physical manifestation.

The OLRC considered and rejected these rationales. The OLRC Report noted at p. 100 that it has now been generally recognized that such restrictions do not render land inalienable. Rather, both positive and negative covenants tend to enhance alienability, since they operate to protect the amenities of neighbourhoods and competitiveness of businesses. The second rationale that gave rise to the ancient rule has never been an obstacle in Ontario, since a system of land registration has existed since the province was created.

[95] A similar observation on the inalienability aspect of the rationale for the rule in Austerberry was made by Cambridge University law professor Kevin Gray in his text, The Elements of Land Law, 2nd ed. (London: Butterworths, 1993), at pp. 1133-34:

Although the principle of Austerberry v. Oldham Corpn. was clearly motivated by a policy that land should remain unfettered for future generations, the implications of that decision are nowadays a matter of considerable disadvantage. It has been pointed out, for instance, that the principle 'impedes transactions in land which have become socially desirable'. The anxiety of judges in the 19th century to limit the kinds of incumbrance which might be imposed upon the freehold estate is not particularly apposite under the vastly changed conditions of modern life where most people live in large cities. The property law of the 19th century was highly individualistic and made little provision for 'freeholders living like battery hens in urban developments' where much of the land area may consist of amenities which belong to none personally but which are socially necessary for all.

[96] Second, the rule in Austerberry is simply too harsh if it is applied in all cases. In a comprehensive study of all aspects of the law relating to covenants entitled Transfer of Land: The Law of Positive and Restrictive Covenants (1984), The Law Commission of the United Kingdom stated, at p. 19:

The greatest and clearest deficiency in the law . . . is that the burden of a positive covenant entered into between nearby landowners does not in any circumstances run with the land of the covenantor.

(Emphasis added)

In a similar vein, Professors Bradbrook, MacCallum and Moore, the authors of the leading text Australian Real Property Law, 2nd ed. (Sydney: Law Book Co., 1997), have described the rule in Austerberry as "inflexible" and have documented a number of methods for "avoid[ing] the severity of the rule" (pp. 18-6 to 18-7).

[97] Third, in most common law jurisdictions where the rule in Austerberry applies there has been substantial modification of the rule by legislatures. This is particularly so in the relatively new and rapidly growing domain of condominiums: see Ziff, Principles of Property Law, 3rd ed.(Toronto: Carswell, 2000) at p. 366. Indeed, in Ontario, as Charron J.A. points out in her reasons, there are now at least 12 statutes that derogate from the application of the rule in Austerberry in certain situations.

[98] Amberwood contends that the existence of these statutory exceptions implies that the legislature has endorsed the rule in Austerberry in all other situations, including the situation in this case. I disagree. The more logical interpretation, in my view, is that the legislature has on occasion dealt with discrete problems presented by the "inflexible" and "severe" rule. The legislature's solutions to those problems are not a warning to the courts that they should abdicate their traditional role as interpreters and developers of the common law in this domain.

[99] Fourth, and related to the previous point, the rule in Austerberry is a common law rule created by the courts in the United Kingdom and adopted by courts in other jurisdictions, including Canada: see Parkinson v. Reid, supra. I see no reason why the courts should not regard it as their function to assess, in a principled way, whether the rule should apply in every case and to consider whether exceptions need to be developed to deal with unforeseen situations or cases where the strict application of the rule would lead to injustice. That process is the essence of the common law. As Justice Cardozo said in The Nature of the Judicial Process (New Haven: Yale University Press, 1921), the book flowing from the Storrs Lectures delivered at Yale University: "There are gaps to be filled. There are doubts and ambiguities to be cleared. There are hardships and wrongs to be mitigated if not avoided" (p. 14).

[100] Having concluded that it is appropriate for the courts to address the issue of exceptions to the rule in Austerberry, the question becomes: what are the possible exceptions and should any of them be applied in the present case? In the last half-century, the case law in the United Kingdom has provided two possible exceptions -- the benefit-burden exception and the conditional grant exception. I will consider them in turn.

(3) The Benefit-Burden Exception

[101] The benefit-burden exception is easy to state -- "he who takes the benefit of the transaction must also bear the burden": see Tito v. Waddell (No. 2), supra, at p. 289, per Megarry V.-C. The benefits and burdens can arise out of entirely separate obligations. As explained by Professor Ziff in "Positive Covenants Running With Land: A Castaway on Ocean Island?" [See Note 1 at end of document] (1989), 27 Alta. L.R. 354 at p. 356 ("Positive Covenants"):

The principle of benefit and burden applies where, as a matter of construction, the benefits and burdens are created as independent obligations, for a central feature of the doctrine is to tether previously separate promises.

[102] The first case in which the benefit-burden exception was applied was Halsall v. Brizell, supra ("Halsall"). In that case, the purchasers of lots in a subdivision were entitled under a trust deed to use private roads and other amenities. Each purchaser covenanted to pay a share of the costs to maintain the amenities. This is a classic positive covenant squarely within the rule in Austerberry.

[103] The court held that the successors to the original covenantors were liable to pay their share of the costs. Upjohn J. was well aware that he was dealing with positive covenants. He observed that the successors could not be sued on the covenants in the original deed because "a positive covenant . . . does not run with the land" (p. 377 All E.R.). However, he continued, at p. 377 All E.R.:

It is, however, conceded to be ancient law that a man cannot take benefit under a deed without subscribing to the obligations thereunder. If authority is required for that proposition, I refer to one sentence during the argument in Elliston v. Reacher, [1908] 2 Ch. 665, where Sir Herbert Cozens-Hardy, M.R., said, at p. 669:

It is laid down in Coke on Littleton, 230b, that a man who takes the benefit of a deed is bound by a condition contained in it though he does not execute it.

If the defendants did not desire to take the benefit of this deed, for the reasons that I have given they could not be under any liability to pay the obligations thereunder. They do desire, however, to take the benefit of this deed. They have no right to use the sewers which are vested in the plaintiffs, and I cannot see that they have any right, apart from the deed, to use the roads of the park which lead to their particular house, No. 22, Salisbury Road . . . Therefore, it seems to me that the defendants here cannot, if they desire to use their house, as they do, take advantage of the trusts concerning the user of the roads contained in the deed and the other benefits created by it without undertaking the obligations thereunder. On that principle it seems to me that they are bound by this deed, if they desire to take its benefits.

[104] The analysis and result in Halsall were almost immediately acclaimed in important quarters. An editorial note annexed to the report of the case in the All England Law Reports said that the conclusion was supported by two legal maxims, the Latin maxim qui sentit commodum sentire debet et onus (he who receives the advantage ought also to suffer the burden) and the Scottish rule that one cannot both approbate and reprobate (p. 372 All E.R.). Favourable case comments by Professor H.W.R. Wade and Robert Megarry appeared in, respectively, [1957] C.L.J. 35 and (1957), 73 L.Q.R. 154. Professor Wade wrote that "[i]n Halsall v. Brizell . . . a method seems to have been found for making the burden of a positive covenant run with land very effectively" (p. 35). In the latter comment, Mr. Megarry concluded, at p. 156:

What plainly would be unjust would be to allow the successors in title to rely on only those portions of the covenants which benefit them, and reject the rest, just as a legatee must accept or reject a legacy as a whole, and not accept the beneficial part and disclaim the remaining burdensome parts: see, e.g. Re Joel, [1943] Ch. 311. Halsall v. Brizell is plainly an important decision of which more will be heard. Those concerned with the development of estates, and perhaps especially those who frame schemes for freehold flats, now have at their disposal a flexible means of enforcing control against successors in title even in matters of positive obligation.

[105] Halsall was applied, and extended to parol agreements, in E.R. Ives Investments Ltd. v. High, supra ("Ives Investments"). In that case, the plaintiffs' predecessor in title, Mr. Westgate, and the defendant, Mr. High, bought adjacent building sites. The foundations of Westgate's building trespassed under High's land. Because Westgate and High were, in Danckwerts L.J.'s words, "sensible and reasonable neighbours" (p. 509 All E.R.), they discussed the situation and reached an agreement -- Westgate's foundation could stay in place and High would have access across Westgate's yard to a side street. High used Westgate's yard for his car, built a garage on his property which could only be accessed from Westgate's yard, and even paid a portion of the costs of re- surfacing Westgate's yard. Eventually, Westgate's property passed into the hands of E.R. Ives Investments Ltd., which challenged High's right of way and sought an injunction restraining High from exercising his right of way across the passage. The trial judge refused the injunction.

[106] On appeal to the Court of Appeal, all three judges delivered reasons. All cited Halsall with approval. Lord Denning said, at p. 507 All E.R.:

When adjoining owners of land make an agreement to secure continuing rights and benefits for each of them in or over the land of the other, neither of them can take the benefit of the agreement and throw over the burden of it. This applies not only to the original parties, but also to their successors. The successor who takes the continuing benefit must take it subject to the continuing burden. This principle has been applied . . . to purchasers of houses on a building estate who had the benefit of using the roads and were subject to the burden of contributing to the upkeep (see Halsall v. Brizell . . .). The principle clearly applies in the present case. The owners of the block of flats have the benefit of having their foundations in the defendant's land. So long as they take that benefit, they must shoulder the burden. They must observe the condition on which the benefit was granted, namely, they must allow the defendant and his successors to have access over their yard . . . Conversely, so long as the defendant takes the benefit of the access, he must permit the block of flats to keep their foundations in his land.

Leave to appeal to the House of Lords was refused.

[107] The third and, without question, the leading English case applying the benefit-burden principle is Tito v. Waddell (No. 2), supra ("Tito"). Tito is a case on a grand scale. The trial lasted 111 days in 1975, 98 days in 1976 and 3 days in 1977. The judgment written by Vice-Chancellor Megarry (who, as Mr. Megarry, had written the favourable case comment on Halsall 20 years earlier) was 241 pages in the law report and took four days to read in open court.

[108] The facts in Tito are from another age and reveal, in Professor Ziff's words, "a measure of corporate and imperial avarice": see Positive Covenants, at p. 355. In 1900, phosphate was discovered on Ocean Island. The island was called Banaba by the inhabitants who were known as Banabans. In the same year, the island became a British settlement. The land on Ocean Island was divided up into a large number of small plots (most of them being less than one acre) owned by individual Banabans or groups of Banabans. A British company was given a licence to mine the phosphate on the island. In 1913, an agreement was reached among the mining company, the Colonial Office, the resident Commissioner and the landowners. The mining company acquired mining rights in return for the payment of certain sums to the landowners and royalties to the government. The agreement also provided that after all the phosphate was removed from the land, the worked-out lands would be returned to the original owners.

The company was required by the agreement to "replant such lands -- whenever possible -- with coconuts and other food- bearing trees, both in the lands already worked out and in those to be worked out".

[109] In 1920, the governments of the United Kingdom, Australia and New Zealand purchased the undertakings of the mining company on Ocean Island and the rights over the mining operations were vested in three Phosphate Commissioners (one from each country). In 1971, a group of Banabans, including Rotan Tito, filed suit against the current Commissioners, seeking performance of the replanting obligation which had become due.

[110] The replanting obligation was a positive covenant; it would have required the Commissioners to spend more money to comply with it. Thus, if the rule in Austerberry applied, the Commissioners, successors to the original covenantors, could not be forced to fulfil the replanting obligation.

[111] Megarry V.-C. was not prepared to accept such a result. He engaged in an extensive analysis of "the principle that he who takes the benefit of a transaction must also bear the burden" (p. 289 Ch.). He divided the principle into two categories, conditional benefits and "the pure principle of benefit and burden" (p. 290 Ch.). He described, and differentiated between, these two categories in this fashion, at p. 290 Ch.:

Conditional benefits and independent obligations. One of the most important distinctions is between what for brevity may be called conditional benefits, on the one hand, and on the other hand independent obligations. An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain burdens assumed, such as an obligation to make certain payments. Such restrictions or qualifications are an intrinsic part of the right; you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee who is bound by the burden; his successors in title are unable to take the right without also assuming the burden. The benefit and the burden have been annexed to each other ab initio, and so the benefit is only a conditional benefit. In the other class of case the right and the burden, although arising under the same instrument, are independent of each other: X grants a right to Y, and by the same instrument Y independently covenants with X to do some act. In such cases, although Y is of course bound by his covenant, questions may arise whether successors in title to Y's right can take it free from the obligations of Y's covenant, or whether they are bound by them under what for want of a better name I shall call the pure principle of benefit and burden.

[112] Megarry V.-C. engaged in an extensive analysis of many authorities and dealt openly with the perceived problems of the benefit-burden principle in a real property context. In particular, he discussed at length Halsall, which he regarded as the leading case in the pure principle of benefit and burden category. He was well aware of the criticisms that had been made of Halsall -- that Upjohn J.'s conclusion on the benefit- burden issue was obiter, was based on a concession by counsel, and involved reliance on a comment during argument (not a decision) by a judge (Cozens-Hardy M.R.) in a previous case.

[113] In spite of these difficulties concerning Halsall, in the end Megarry V.-C. clearly approved of it. He concluded, at p. 295 All E.R.:

Let it be accepted that a degree of historical frailty can be detected in the forensic process in this sphere, and let it also be accepted that at any rate on one view what Upjohn J said on the point was not necessary for his decision and forms no part of his ratio decidendi. Accept all that, and there still remains the fact that, quite apart from other authorities, the propositions enunciated by Cozens-Hardy MR and Upjohn J seemed right to them. Couple that with the simple principle of fairness and consistency that I have mentioned, and it will be seen that there is good reason why I should be ready to adopt and apply the broader proposition that has emerged from the technicalities of past ages.

[114] Applying "the broader proposition" or "the pure principle of benefit and burden", Megarry V.-C. held that the current Commissioners had an obligation to comply with the replanting covenant. They had received, and exercised, the benefit of substantial mining rights. The burden of replanting needed, therefore, to be respected.

[115] The trilogy of Halsall, Ives Investments and Tito created a solid foundation in English law for a benefit-burden exception to the rule in Austerberry. However, blunt and strong judicial criticism of the trilogy, especially Tito, was not long in coming.

[116] By far the strongest criticism came in an Australian case, Government Insurance Office (N.S.W.) v. K.A. Reed Services Pty. Ltd., [1988] V.R. 829 (Vict. S.C.) ("Reed Services"). Although that case could have been resolved on the basis that the successor to a positive covenant had no notice of it ("The appellant, being entirely ignorant of the agreement, could not be said to be taking its benefit": p. 841 V.R.), the full court, speaking through Brooking J., went out of its way to reject the benefit-burden exception. Brooking J. criticized the legal pedigree, namely Halsall, of the pure principle of benefit and burden, expressed concerns about the limits of the principle, called it "a mere maxim masquerading as a rule of law, false and misleading . . . when read literally" (p. 841 V.R.) and concluded, at pp. 840-41 V.R.:

I am, with the greatest respect, unable to accept that there exists a principle of benefit and burden, whether as formulated by Megarry V.-C. [Tito] or as laid down either by Lord Denning M.R. or by Danckwerts L.J. [Ives Investments] . . . It confounds the law relating to covenants affecting land.

I have dealt at some length with the law on this subject because of my impression that the "pure principle" now bids fair to entrench itself in our jurisprudence and because of my clear view that it must, in the interests of certainty and sound doctrine, be repelled.

[117] A less lengthy (indeed it is only a single paragraph) but nevertheless important (because of its source) critique of Tito and the benefit-burden exception to the rule in Austerberry is contained in Rhone v. Stephens, supra ("Rhone"). In that case, in 1960 the owners of a house and an adjoining cottage, which were under the same roof, sold the cottage. In the conveyance, the vendor covenanted for himself and his successors in title as the owners of the house to maintain that part of the roof of the house which was above the cottage in good condition to the reasonable satisfaction of the purchasers and their successors in title. Since 1960 both properties had been sold. In 1986, the plaintiffs, who then owned the cottage, brought an action against the defendant claiming that the roof above the cottage was leaking and that the defendant was in breach of the covenant to repair the roof.

[118] The House of Lords rejected the plaintiffs' position. The law lords expressly affirmed the rule in Austerberry. In a single paragraph, the court, speaking through Lord Templeman, considered the plaintiffs' submission that the defendant, who had the benefit of the shared roof, should be required to bear the burden of repairing the roof pursuant to the covenant on the basis of the benefit-burden exception. Lord Templeman said, at p. 73 All E.R.:

Mr. Munby also sought to persuade your Lordships that the effect of the decision in the Austerberry case had been blunted by the 'pure principle of benefit and burden' distilled by Megarry V-C from the authorities in Tito v Waddell (No 2), [1977] 3 All ER 129 at 291-292, [1977] Ch 106 at 301-303. I am not prepared to recognise the 'pure principle' that any party deriving any benefit from a conveyance must accept any burden in the same conveyance. Megarry V-C relied on the decision of Upjohn J in Halsall v. Brizell, [1957] 1 All ER 371, [1957] Ch 169. In that case the defendant's predecessor in title had been granted the right to use the estate roads and sewers and had covenanted to pay a due proportion for the maintenance of these facilities. It was held that the defendant could not exercise the rights without paying his costs of ensuring that they could be exercised. Conditions can be attached to the exercise of a power in express terms or by implication. Halsall v. Brizell was just such a case and I have no difficulty in whole- heartedly agreeing with the decision. It does not follow that any condition can be rendered enforceable by attaching it to a right nor does it follow that every burden imposed by a conveyance may be enforced by depriving the covenantor's successor in title of every benefit which he enjoyed thereunder. The condition must be relevant to the exercise of the right. In Halsall v. Brizell there were reciprocal benefits and burdens enjoyed by the users of the roads and sewers. In the present case cl 2 of the 1960 conveyance imposes reciprocal benefits and burdens of support but cl 3 which imposed an obligation to repair the roof is an independent provision. In Halsall v. Brizell the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money. In the present case the owners of Walford House could not in theory or in practice be deprived of the benefit of the mutual rights of support if they failed to repair the roof.

[119] In my view, this is a surprising paragraph, for two reasons. First, it begins with a blunt rejection, without reasons, of the pure principle of benefit and burden. The lack of analysis by the House of Lords is surprising in light of the comprehensive, and fairly presented, discussion of the principle in Tito: see N.P. Gravells, "Enforcement of Positive Covenants Affecting Freehold Land" (1994), 110 L.Q.R. 346 at p. 349 ("[Lord Templeman's] formulation of the pure principle does not fairly represent the extensive discussion in Tito v. Waddell (No. 2)"). Second, the House of Lords appears to expressly approve of the conditional grant exception to the rule in Austerberry. Moreover, the law lords' approval flows directly from its "whole-hearted" agreement with Halsall. This is also surprising because in Tito Megarry V.-C. had described Halsall as the genesis of the pure principle of benefit and burden, not as an example of the conditional grant exception.

[120] Against this background of the case law, I turn to the academic commentary on the benefit-burden exception to the rule in Austerberry. The commentary has been recently, just as it was immediately after Halsall in 1957 (see comments by Megarry, supra, and Wade, supra), largely complementary. Leading scholars express concerns about the antecedents of the exception (especially some of Upjohn J.'s reasoning in Halsall), the factors to be taken into account in analyzing benefit and burden, and the reach and implications of the exception. However, in the end most scholars think that the benefit-burden exception plays a useful role in real property law.

[121] Professor Bruce Ziff, a leading Canadian property law scholar, in his comprehensive and excellent article Positive Covenants, favoured the analysis in Tito to that in Reed Services and concluded, at p. 372:

[I]ncremental adjustments through the caselaw should not be regarded with surprise or dismay. There are no compelling reasons why the schemes sought in Reed Services and Tito should not be regarded as permissible as an ordinary incident of private property ownership. In both cases, allowing affirmative burdens to run with land would have enabled the parties to meet their intended objectives in a straightforward and inexpensive fashion.

[122] Professor E.P. Aughterson, an Australian scholar who has written extensively on property law, also favoured the analysis in Tito to that in Reed Services. In the concluding section of his article "In Defence of the Benefit and Burden Principle" (1991), 65 A.L.J. 319 at p. 331, he said:

It has been suggested, above, that the scope of the benefit and burden principle is sufficiently clear to allow its application with a reasonable degree of precision and that other principles are not a bar to its adoption. Rather, various devices, such as chains of indemnities, restrictive covenants, estoppel and rent charges, as well as the benefit and burden principle, have evolved in order to meet the unsatisfactory consequences of the rule that the burden of positive covenants does not run with the land. None of these devices, in themselves, provide a comprehensive solution. The benefit and burden principle is no exception. It operates only where a benefit can be given and continues only while the benefit is sufficiently valuable for the covenantor's successor to continue to claim it. Nevertheless, it is another weapon in an armoury which might be used to militate against a common law rule which can operate unfairly in some instances.

[123] In the United Kingdom, Professor Christine Davis has recently written a thoughtful article, "The Principle of Benefit and Burden" (1998), 57 C.L.J. 522. The value of this article is that Professor Davis considers a wide variety of applications of the benefit-burden principle in several areas of private law, including real property. She deals extensively with objections to the pure principle of benefit and burden and concludes that they "relate largely to the fact that its limits are unclear and that it has potentially far-reaching effects" (p. 548). However, in the end Professor Davis emerges as a strong supporter of the principle of benefit and burden and of its leading case authorities in the real property domain, Halsall and Tito. She concludes, at pp. 552-53:

It is arguable that "benefit and burden" is a principle, reasonably clear in its application, that promotes fairness and, consequently, far greater use should be made of it. It seems only fair that a right or benefit originally granted subject to a condition or linked with a reciprocal right or obligation should remain conditional or linked. In recent years the courts have been keen to make use of other principles that can be seen to achieve fairness in the circumstances and in the light of the conduct of the parties, such as constructive trusts and proprietary estoppel. For example, a purchaser of land may be bound by means of a constructive trust by a contractual licence or unregistered registrable interest where his conscience is affected because of the circumstances surrounding the assignment. Why should his conscience not also be affected by the circumstances of the grant, at least where he has knowledge of them, combined with his later conduct in taking the benefit? Perhaps the only justifiable distinction between the principle of benefit and burden on the one hand and the constructive trust and doctrine of proprietary estoppel on the other hand is that the latter are discretionary in their application or effects whereas the former is not. Nevertheless, provided that the courts reach a satisfactory conclusion in relation to issues such as the need for knowledge so as to ensure that the principle of benefit and burden is fair to all concerned, it is arguable that the principle of benefit and burden is a useful doctrine which should be invoked by the courts whenever the circumstances permit.

[124] Based on this review of the leading case authorities and some of the academic and professional commentary, the question becomes: should the principle of benefit and burden be adopted in Ontario as an exception to the rule in Austerberry?

[125] I begin by noting that, in my view, it is open to Canadian courts to adopt the benefit-burden exception if they think it has merit. In a real property context, the exception has not been rejected by any appellate court. Indeed, the exception and its originating case, Halsall, were mentioned by Cartwright J. in Parkinson v. Reid. In that case, the court affirmed the general rule that positive covenants do not run with the land. Accordingly, the successor in title to a covenant requiring repair of a stairway was not obligated to comply with the covenant. However, Cartwright J. observed, at pp. 168-69 S.C.R.:

Assuming that so long as the appellants made use of the last-mentioned wall as a party wall they were bound to keep the stairway in repair, they ceased to be under any such obligation when they no longer made use of the respondent's wall. It is not suggested that the appellants have made any use of that wall since their building was destroyed by fire. A case in which this principle was applied is Halsall v. Brizell . . .

[126] Turning to the fundamental question, I can state my view that the benefit-burden exception to the rule in Austerberry should be adopted. I believe that the analysis in Halsall, Ives Investments and Tito is preferable to the analysis in Reed Services and Rhone. I also find persuasive the strong academic and professional support for the exception, extending from Professor Wade and Mr. Megarry in 1957 to Professor Aughterson in Australia, Professor Davis in the United Kingdom and Professor Ziff in Canada in recent years.

[127] The final question then becomes: is the exception applicable in this case? I begin my answer to this question by noting that all of the judges and academics who favour the exception admit that there are problems with it. In Tito, Megarry V.-C. was particularly candid on this point. He began the summary of his conclusions with this sentence: "I emerge from a consideration of the authorities put before me with a number of conclusions and a number of uncertainties" (p. 302 Ch.).

[128] In spite of problems and uncertainties, in my view it is possible, based on the case authorities and the academic commentary, to state the components of the benefit-burden exception with a reasonable degree of clarity.

[129] First, the assignee of a positive covenant must have notice of it. The burden of such a covenant cannot attach to a person who was not aware of it. That will rarely be an issue in Ontario where a wide variety of documents relating to land can be registered and are thus accessible.

[130] Second, a positive covenant which imposes a burden on an assignee must be accompanied by a benefit. The burden will not run in isolation.

[131] Third, it may be that there is some type of qualitative threshold in the benefit and burden analysis. Megarry V.-C. seemed to envisage one because in Tito he said, at p. 305 Ch.:

I do not think that the pure benefit and burden principle is a technical doctrine, to be satisfied by what is technical and minimal. I regard it as being a broad principle of justice, to be satisfied by what is real and substantial.

See also: Ziff, Positive Covenants, at p. 357.

[132] Fourth, there need not be a direct relationship or linkage between the benefit and the burden. They are, as Megarry V.-C. said in Tito, "independent" (p. 290 All E.R.), which distinguishes them from conditional benefits (discussed below).

[133] Fifth, the assignee must be able to exercise a choice about assuming the benefits and burdens. This was one of the fundamental components of the exception described by Upjohn J. in Halsall (p. 377 All E.R.). It should be recalled that Halsall was specifically approved in Rhone, although the approval is surprising and confusing in light of the House of Lords' rejection of Tito; on the issue of choice or election, Lord Templeman said: "In Halsall v. Brizell the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money" (p. 73 All E.R.).

[134] Turning to the application of these factors in the present case, it is clear that they line up in favour of the appellant.

[135] Amberwood had clear notice of the burdens which it would be required to assume. Indeed, before the litigation was commenced, there were extensive negotiations about the burdens and, at one point, Amberwood's counsel informed DCC's counsel, in a letter dated October 1, 1999, "I have advised my clients and they have agreed with me to accept that they are bound by the terms of the agreement."

[136] In addition, there can be little question that Amberwood derived benefits from the agreement and that, on any standard, the benefits are "real and substantial". The recreational and utility units in DCC's building, which are partly owned by Amberwood, are maintained by DCC. There is 24- hour security for that building. Amberwood also has the benefit of ten valuable easements provided for in s. 3.1 of the agreement.

[137] Finally, Amberwood exercised a clear choice when it accepted the benefits under the agreement. It has never disclaimed its entitlement to the benefits; indeed it has openly asserted that entitlement and an intention to use the benefits, including "for [Amberwood's] future marketing program" (Price-Kilgour letter, September 24, 1999).

[138] In summary, I would apply the benefit-burden exception to the rule in Austerberry in the present case. Since Amberwood had notice of the burdens, since the benefits are "real and substantial", and since Amberwood elected to accept them, it must also accept the burden of paying its share of the interim costs.

[139] Before leaving this issue, which I acknowledge is a difficult one, I want to make two final observations.

[140] First, I do not think there is an inconsistency between the introduction of the benefit-burden exception into the law of Ontario and the continuation of the general rule that positive covenants do not run with the land. Put another way, I do not think that the exception swallows the rule. Professor Davis, in her article "The Principle of Benefit and Burden", stated that with respect to the "pure principle of benefit and burden . . . [e]nforcement is only possible in certain circumstances, not generally" (p. 552). The Ontario Law Reform Commission, in its Report on Covenants Affecting Land (1989), said that the usefulness of the exception in Halsall "is somewhat limited. It will operate only if there is a benefit to be claimed under the deed, and further, it will operate only so long as the assignee of the covenantor continues to claim that benefit" (p. 23). Professor Eileen Gillese, in her text Property Law, 2nd ed. (Toronto: Emond Montgomery, 1990), made a similar observation: "The doctrine in Halsall v. Brizell . . . is of limited application, however, since it only applies if the assignees claim or use the benefit" (p. 20:10).

[141] I agree with these comments. The exception will not apply if there is no notice of the burden or if there is no benefit for the assignee to receive or if the assignee elects not to accept the benefit. These are important factors; their presence will allow the general rule to continue to be applied in many appropriate cases.

[142] Second, I do not think that the benefit-burden exception will hinder the alienability of land. Market forces will deal with the exception, just as they deal with all other relevant factors in a purchase and sale context. As explained by Professor Ziff in Positive Covenants, "market forces will take account of, and respond to, the effect of positive covenants on alienation: if a covenant renders a property less desirable, its price will fall until it again becomes attractive to purchasers" (p. 369). Moreover, in many situations, especially large-scale development projects, the exception will be viewed by the contracting parties as highly desirable because it will promote alienability: see Ontario Law Reform Commission, Report on Covenants Affecting Freehold Land, at p. 100, and Gray, The Elements of Land Law, at pp. 1133-34.

(4) The Conditional Grant Exception

[143] The conditional grant exception to the rule in Austerberry was succinctly explained by Megarry V.-C. in Tito, at p. 290 Ch. For ease of reference, I set out this passage again:

An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain burdens assumed, such as an obligation to make certain payments. Such restrictions or qualifications are an intrinsic part of the right: you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee who is bound by the burden: his successors in title are unable to take the right without assuming the burden. The benefit and the burden have been annexed to each other ab initio, and so the benefit is only a conditional benefit.

[144] I begin by observing that I think the case for importing this exception into Ontario law is even stronger than the case for importing the benefit-burden exception. I acknowledge that there is uncertainty about the existence of the benefit-burden exception in English law in light of the House of Lords' terse disapproval of it in Rhone. Nevertheless, I would import it into Ontario law because I think it will make the law of real property more just.

[145] As for the conditional grant exception, on my reading of the cases, it is accepted in English law. There is no uncertainty concerning its existence. The reason for the certainty on this point is that in Rhone the law lords expressly approved of the result in Halsall and, perhaps surprisingly, explained Halsall as an example of the conditional grant category. Accordingly, the question in this aspect of the appeal is whether an accepted principle in English law should become part of the law of Ontario. For the reasons in the previous section, I would answer this question in the affirmative.

[146] It remains to determine whether the conditional grant exception applies in the present case. In my view, it does apply.

[147] I begin by noting the title of the governing document, the Reciprocal Easement and Cost Sharing Agreement. This title suggests, in my view, a direct linkage between the benefits of the easements and the burden of cost sharing.

[148] The preamble to the agreement also explicitly links easements and cost sharing:

AND WHEREAS the [owners] are entering into this Agreement to provide, without limitation, for . . . the sharing of responsibilities and costs for mutual services . . . and . . . the Easements required by each of the parties . . . .

[149] Sections 3.1 and 3.2 of the agreement then set out an extensive list of highly valuable easements -- ten in favour of Amberwood's predecessor and four in favour of DCC. Amberwood's easements include rights of access to permit construction of Phase 2, rights of access for purposes of maintenance, repair, installation and vehicular and pedestrian movement, and rights to tap into existing facilities in the Phase 1 building.

[150] Crucially, s. 13.1(b) of the agreement provides:

Section 13.1 - Provisions Run with the Land

(b) The parties hereto hereby acknowledge and agree that the Easements, rights and provisions as set forth in this Agreement establish a basis for mutual and reciprocal use and enjoyment of such Easements, rights and provisions and as an integral and material consideration for the continuing right to such use and enjoyment each party hereto does hereby accept, agree to assume the burden of, and to be bound by each and every of the covenants entered into by them in this Agreement.

[151] The application judge interpreted s. 13.1(b) in this fashion [at p. 679 O.R.]:

In my view, the language of that section makes it clear that the payment of interim costs, as one of the covenants in the reciprocal agreement, was intended to be a condition upon which the other easements were conveyed. The provision does not support Amberwood's submission that the cost-sharing obligations should be viewed as distinct from the scheme for mutual easements. To the contrary, para. 13.1(b) seems to envision a building project in which the owners would share costs in exchange for shared access and ownership. To undermine this clear intention by severing the cost obligations from the overall deal would amount to dismantling part of an intricate, complex, and well-planned scheme, and defeating legitimate party expectations.

[152] I agree with this analysis. In my view, it is clear from a reading of the entire agreement -- its title, preamble and substantive provisions -- that there is a direct and intentional linkage or reciprocity between the benefits of the easements, which are numerous and valuable, and the burden of the interim costs that are in issue in this appeal. Accordingly, since Amberwood had notice of the burdens and elected to accept the benefits (even though their full value will not be realized until Amberwood either builds Phase 2 or sells the land, presumably for a price that would reflect the benefits of the easements), it must also accept the linked burden of paying its share of the interim costs.

(5) Conclusions and Disposition

[153] This is a difficult case, in terms of both the proper role of the courts in changing the common law and the substantive law of real property.

[154] I agree with my colleague, Charron J.A., that abolition of the rule in Austerberry must come, if it comes at all, through legislation. I also agree with my colleague's thoughtful reasons in support of this conclusion.

[155] My colleague extends her reasoning to the question of whether the law of Ontario should admit of exceptions to the rule in Austerberry. I confess that there is much to be said for my colleague's reasoning on the question of exceptions.

[156] However, with respect, I have reached a different conclusion on the question of exceptions. In my view, there are recognized exceptions to the rule in Austerberry in English case law. The judicial reasoning in support of the exceptions and the academic and professional commentary about that reasoning persuade me that the exceptions should be adopted as part of the common law of Ontario.

[157] As to whether the courts can introduce the exceptions into the law of Ontario, I recall again what Justice Cardozo said about the role of the common law in The Nature of the Judicial Process: "There are gaps to be filled. There are doubts and ambiguities to be cleared. There are hardships and wrongs to be mitigated if not avoided" (p. 14).

[158] In a similar vein, Bastarache J. recently discussed judicial reform of the common law in Friedmann Equity Developments Inc. v. Final Note Ltd., supra, at p. 871 S.C.R., pp. 290-91 D.L.R. ("Friedmann Equity"):

[I]t is necessary to understand the principles which govern judicial reform of the common law. In the past, this Court has considered the conditions which must be present to effect a change in the common law in several cases: [names and citations omitted]. From these cases, some general principles have emerged. A change in the common law must be necessary to keep the common law in step with the evolution of society . . . to clarify a legal principle . . . or to resolve an inconsistency. In addition, the change should be incremental, and its consequences must be capable of assessment.

(Emphasis added)

[159] Canadian society and the patterns of property ownership in 2002 are very different from English society and land ownership in 1885 when Austerberry was decided. The Ontario legislature has recognized the differences and enacted laws mitigating the rigours of the rule in Austerberry -- on 12 occasions.

[160] In my view, the benefit-burden and conditional grant exceptions to the rule in Austerberry can perform a similar role if introduced into the common law of Ontario. As I have tried to explain the exceptions, their adoption would, as required by Bastarache J. in Friedmann Equity, result in incremental change with consequences capable of assessment. They would also meet Justice Cardozo's important objective of mitigating hardships or wrongs in appropriate cases. This is one of those cases. The intentions of the original contracting parties and the wording in the agreement they signed are both crystal clear: a regime of reciprocal easements and other benefits and cost sharing was established. Amberwood, a successor in title to one of the contracting parties, chose, with full knowledge of the clear terms of the original agreement, to accept and utilize the benefits of the agreement. In my view, it would be unjust to permit Amberwood to ignore the reciprocal burdens which the agreement so clearly imposes on it.

[161] For these reasons, I would allow the appeal with costs.

Appeal dismissed with costs.

Notes

Note 1: Ocean Island is another name for Tito v. Waddell (No. 2).

Durham Condominium Corporation No. 123 v. Amberwood Investments Limited et al., 2002 ONCA 44913

Case Summary

Durham Condominium Corporation No. 123 v. Amberwood Investments Limited et al.

Judges

Counsel

Parties

Areas of Law

Fact Patterns

Issues

Legal Tests 2

Legislation 13