SUPERIOR COURT OF JUSTICE – ONTARIO

COURT FILE NO.: CV-15-3517-00
DATE: 2015-09-28

RE: Randal Spencer McLeod v. Laurie Silva Walker

BEFORE: Barnes, J.

COUNSEL: Edwin Upenieks/Sahar Cadili, for the Applicant
Christopher FitzGerald, for the Respondent

HEARD: September 17, 2015

E N D O R S E M E N T

[1] This is an application under s. 71 of the Land Titles Act and rules 14.05 (3)(e) and (h) of the Rules of Civil Procedure.

[2] The Respondent, Laurie Walker, and Applicant, Randall Spencer McLeod, are brother and sister. Ms. Walker has filed a notice of interest, under s. 71 of the Land Titles Act, on land owned by Mr. McLeod. This notice is Instrument Number PR2508327.

[3] The lands are more particularly described as Part Lot 19, Concession 1, Albion AS IN RO1050161 EXCEPT AL 18868; Caledon in the Land Registry Office for the Land Titles Division of Peel Number 43 and municipally known as 15717 Airport Road, Caledon East (hereinafter, “the Property”).

[4] I have concluded that Mr. McLeod’s application to remove the notice shall be granted. The notice is removed forthwith and any net proceeds from the sale of the property shall be paid simultaneously to the parties in the proportion of 15 per cent to Ms. Laurie Walker and 85 per cent to Randall Spencer McLeod.

BACKGROUND FACTS

[5] Ms. Walker and Mr. McLeod’s parents owned the property. Their father, John James McLeod, passed away in December 1993, and as a result their mother, Doris McLeod, became the sole owner of the property.

[6] Mr. McLeod always lived on the property and has been involved in the farming operations on the property from his youth to the present time. Ms. Walker left the farm as a youth. She attended university, got married and lives in Sault Ste. Marie. Ms. Walker has been a frequent visitor to the farm, particularly while their parents were alive.

[7] In October 2002, Doris McLeod transferred title to the property to herself and Mr. McLeod as joint tenants. This was to ensure that Mr. McLeod became the sole beneficial owner of the property upon her death.

[8] On October 29, 2009, Doris McLeod and Mr. McLeod signed an Agreement. This Agreement reflected the wishes of Doris McLeod. Pursuant to this Agreement, Mr. McLeod was to continue to use the property for his own farming operations as long as he wished and it was in his sole discretion as to the time, details, or price of any sale or disposition of the property.

[9] In addition, all expenses of the sale including taxes and costs of disposition are to be paid from the proceeds of the sale. From the net proceeds of sale Mr. McLeod is to receive 85 per cent and Ms. Walker is to receive 15 per cent.

[10] On October 20, 2012, Doris McLeod passed away. On or about December 21, 2012, title was registered in Mr. McLeod’s name solely by right of survivorship.

[11] Since Doris McLeod’s death, estate taxes remain outstanding. Ms. Walker and Mr. McLeod have had ongoing disputes about how to resolve issues relating to the estate taxes.

[12] To protect her interest in the net proceeds from the sale of the property, Ms. Walker decided to register a notice pursuant to s. 71 of the Land Titles Act. This was done on March 10, 2014. The Notice is identified as PR2508327 in the Land Titles Office for the Peel Region.

[13] As a result of the dispute, the parties retained solicitors who exchanged various correspondence. In one such correspondence, dated May 11, 2015, tax counsel for Mr. McLeod questioned the enforceability of the October 29, 2002, Agreement which created the 15 per cent and 85 per cent split in the net proceeds from the sale of the property.

FACTS NOT IN DISPUTE

[14] The parties agree that the October 29, 2002, Agreement between Mr. McLeod and Doris McLeod, created a trust in the net proceeds from the sale of the property.

[15] It is agreed that the beneficiary of that trust is Ms. Walker. It is also agreed that Ms. Walker’s interest in the net proceeds is 15 per cent.

ISSUES

[16] The issue in this motion is:

(a) Is the notice of interest in land filed on the title of the property under s. 71 of the Land Titles Act legal?

DISCUSSION

Is the notice of interest in land filed on the title of the property under s. 71 of the Land Titles Act legal?

[17] I have concluded that the October 29, 2002, Agreement creates a Trust of 15 per cent of the net proceeds from the sale of the property. Ms. Walker is the beneficiary of this Trust. Mr. McLeod owns the property, on sale of the property he will hold 15 per cent of the net proceeds of the sale in trust for Ms. Walker. Section 62(1) of the Land Titles Act expressly prohibits the registration of a Trust on title and the Director of Titles has not authorised the registration of the notice. Therefore, the notice registered by Ms. Walker is unauthorised.

Law

[18] To register an interest under s. 71 of the Land Titles Act, one has to have an interest in the land. Section 71(1) of the Land Titles Act states the following:

Any person entitled to or interested in any unregistered estates, rights, interests or equities in registered land may protect the same from being impaired by any act of the registered owner by entering on the register such notices, cautions, inhibitions or other restrictions as are authorized by this Act or by the Director of Titles.

[19] Notice of interests created by Trusts is prohibited. Section 62(1) of the Land Titles Act states the following:

A notice of an express, implied or constructive trust shall not be entered on the register or received for registration.

POSITION OF THE PARTIES

[20] The Applicant argues that a trust in net proceeds of sale does not create an interest in land. Where there is no interest in land, then Ms. Walker cannot register the notice on title pursuant to s. 71 of the Land Titles Act.

[21] The Applicant also argues that it is not in dispute that Mr. McLeod, as the registered owner, holds 15 per cent of net sale proceeds, upon the sale of the property, in trust for Ms. Walker. Ms. Walker’s interest is created by virtue of a trust and s. 62(1) of the Land Titles Act expressly prohibits the registration of trusts on title.

[22] Ms. Walker submits that paragraphs 1 and 4 of the Agreement create a right, interest or equity in land, at such time as they are sold. According to Ms. Walker the Agreement in paragraphs 2 and 5 additionally imposes a trust upon Mr. McLeod to carry out this direction of the previous sole owner of the land, the mother of the parties, Doris McLeod, to which he agreed.

[23] Ms. Walker explains that the October 29, 2002, Agreement creates a trust and she is a beneficiary of 15 per cent of the net proceeds upon sale of the property; however, Ms. Walker’s submits that upon the sale of the property her interest in the net proceeds immediately crystallises and attaches to the land. Therefore, she has an interest in the land and can register the notice on title to the property.

[24] Ms. Walker explains that an “entitlement to an interest in a share of the proceeds of sale of land is at a minimum an equitable right and it is without conditions that make the interest and ultimate entitlement uncertain. If only an interest it becomes an equitable interest a moment before the sale of the land.” Ms. Walker relies on the Ontario Court of Appeal decision in Benzie v. Hania, 2012 ONCA 766, 112 O.R. (3d) 481.

Analysis

[25] Paragraph 1 of the Agreement creates an express trust for 15 per cent of the net proceeds of sale with Laura Walker as beneficiary. Paragraph 1 states the following:

Randy does hereby agree that it is the intention of Doris and Randy that his sister, Laurie Silva Walker should ultimately share the proceeds of sale of the real property when it is sold and in such a manner that Randy obtains 85% of the proceeds of the sale and Laurie Silva Walker obtains 15% of the proceeds of the sale.

[26] Paragraph 2 of the Agreement stipulates that of the distribution of the net sale proceeds shall be done at the time of the sale of the property in the proportion of 15 per cent to Laurie Walker and 85 per cent to Mr. McLeod.

[27] Paragraph 3 of the Agreement gives Mr. McLeod unfettered decision making powers on the use and sale of the property. Ms. Walker has no part in this process whatsoever. Paragraph 4 reiterates that upon sale of the property, Mr. McLeod agrees that he shall remit the net proceeds to Ms. Walker as stipulated in the terms of the Agreement.

[28] Paragraph 5 of the Agreement states as follows:

Randy does acknowledge that the effect of this Agreement is that at all times he shall be considered to be holding his interest in the real property in trust as to an 85% interest for himself and the 15% interest for his sister, Laurie Silva Walker.

[29] It clear from paragraphs 1, 2, 3, 4 that Ms. Walker’s interest in the property is limited to the net sale proceeds and her entitlement is to 15 per cent of the net proceeds from the sale of the property. Also upon the death of Doris McLeod, Mr. McLeod became the sole owner of the property; however, in paragraph 5 of the Agreement, Mr. McLeod agrees that the effect of the Agreement is that Ms. Walker has a Trust interest in the land of 15 per cent and Mr. McLeod a Trust interest in the land of 85 per cent. In effect Ms. Walker has an equitable interest in the property of 15 per cent.

[30] This is not the position advanced by Ms. Walker or Mr. McLeod. Both parties agree that when the Agreement, is taken as a whole, Ms. Walker’s interest is limited to the net proceeds of the sale. Therefore, Mr. McLeod submits it is not an interest in land and, therefore, it cannot be registered on title. Ms. Walker counters that it is Trust interest in the net proceeds of land which crystallises upon the sale of the land and at that time becomes an interest in land.

[31] In my view, there is persuasive argument that paragraph 5 constitutes an Agreement between Mr. McLeod and Doris McLeod that the Trust interest in the net proceeds will constitute a Trust interest in the land, however, irrespective of how the interest created by the Trust is characterised, the existence of a Trust resolves the issue in this case. I will explain.

[32] In Benzie the benefit was a right of first refusal to purchase the land upon sale of the land. The court explained:

[67] A right of first refusal is a personal right. As such, it does not create an immediate interest in land. Nonetheless, when an offer of purchase is made which the landowner is prepared to accept, the holder's right of first refusal is converted into an option, to purchase, which is an equitable interest in the land. (I will refer to the point of conversion as crystallization.) Where the land is transferred in breach of the right of first refusal and the transferee takes with notice, the transferee is liable to be joined and bound by an order of specific performance requiring the owner to transfer the land to the holder.

[75] Recall that at the point of crystallization, the holder's personal right is converted into an equitable interest in the land. That is, the holder becomes entitled to an unregistered equity in registered land.

[78] What did the holder have before crystallization? The holder had an interest in the unregistered equity that arose at the point of crystallization. To be sure, the holder is not entitled to the equity, as that entitlement arises on crystallization. But the holder has an interest in it, in the sense that the holder has something more than a mere spes or hope. The holder, prior to crystallization, has the recognized legal interest that will swell into an equitable right on crystallization. In the language of s. 71(1), the holder is a person ". . . interested in [an] unregistered . . . [equity] in registered land". Accordingly, rights of first refusal over land can be protected by registration under s. 71(1).

[33] In Benzie the right of first refusal was a right to purchase the land. In effect, it was a right to acquire ownership in the land that crystalizes upon the event of listing the property up for sale. It is the right to first refusal to purchase the land that creates the equitable right to the land.

[34] In my view absent an express intent in the Agreement that the Trust giving Ms. Walker a 15 per cent beneficial interest in the net proceeds of the sale of land shall mean an interest the land, there is no crystallization of the interest in net proceeds of sale into an equitable interest in the land upon the sale of the land.

[35] This is because, unlike in Benzie, where the right of first refusal was in relation to the land, it is explicit in paragraphs 1 to 4 of the Agreement that Ms. Walker’s interest is only in relation to the net proceeds of sale and not to the land; however, in my view, paragraph 5 of the Agreement changes all that and equates Ms. Walker’s interest in the net proceeds of sale to a Trust interest in the land. So it would appear that absent some statutory prohibition, Ms. Walker as the beneficiary of a Trust interest in land should be able to register a notice of that interest on title. Section 62(1) of the Land Titles Act is that statutory prohibition.

[36] A purchaser who purchases a property with notice of the right of first refusal to purchase the land faces potential liability. The court in Benzie wrote at paragraph 67:

Where the land is transferred in breach of the right of first refusal to purchase and the transferee takes with notice, the transferee is liable to be joined and bound by an order of specific performance requiring the owner to transfer the land to the holder.

[37] Similarly this circumstance will also apply in a case where the subject matter of the trust is land, a beneficiary may have a cause of action against a purchaser with notice of the trust. Avoidance of this issue is the reason why s. 62(1) of the Land Titles Act is codified. Victor Di Castri, in the text Registration of Title to Land, loose-leaf (Toronto: Carswell, 1987), at para. 750, explains the rational for s. 62(1) of the Land Titles Act:

The mischief at which the enactments are aimed is the equitable doctrine that a purchaser with notice that his vendor is a trustee must satisfy himself that the purchase is authorized by the trust instrument. The Acts do not prohibit a trust. Only entry in the register is prohibited.

[38] Thus, the main distinguishing factor from Benzie is that there is no prohibition in the Land Titles Act against the registration of a “right of first refusal”. This case involves a Trust, the registration of which is expressly prohibited by s. 62(1) of the Land Titles Act.

[39] Section 71(1) of the Land Titles Act permits the registration of “such notices, cautions, inhibitions or other restrictions as are authorized by this Act or by the Director of Titles.” The registration of the interest created by the Trust is not authorised by the Land Titles Act or by the Director of Titles. Therefore, the notice on title is unauthorised: see also Clairevile Holdings Limited v. Botuik, 2014 ONSC 6505, at paras. 14-19. The unauthorised notice shall be removed. This court orders that Instrument Number PR2508327 is vacated.

[40] The Applicant’s request for an order that 15 per cent of the proceeds of the sale of the property shall be paid into court, subject to an Agreement of the parties or other order of this court, is opposed by the Respondent and is denied.

[41] Pursuant to the October 29, 2002, Agreement, 85 per cent and 15 per cent of the net proceeds from the sale of the property is to be distributed to Mr. McLeod and Ms. Walker respectively. There is no reason to deviate from the Agreement.

[42] Therefore, upon sale of the property, the net proceeds of the sale shall be distributed simultaneously to Mr. McLeod and Ms. Walker as follows: 85 per cent of the net proceeds of sale to Mr. McLeod and 15 per cent of the net proceeds of sale to Ms. Walker.

[43] Should the parties be unable to agree on costs the parties shall file a two page cost outline with the court within 15 days.

Barnes, J.

DATE: September 28, 2015

COURT FILE NO.: CV-15-3517-00

DATE: 2015-09-28

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Randal Spencer McLeod and Laurie Silva Walker

BEFORE: Barnes, J.

COUNSEL: Edwin Upenieks/Sahar Cadili, for the Applicant

Christopher FitzGerald, for the Respondent

ENDORSEMENT

Barnes, J.

DATE: September 28, 2015