When considering purchasing real property, it is crucial to review the title to the property carefully. The land title will record whether others have certain registered claims in relation to the property, which may affect the property’s proposed use.
Sometimes a land title will record an interest in the land but the particular instrument creating the interest may be misplaced and not available from the Land Titles Office. Therefore, property purchasers need to be very careful in ensuring that they take all reasonable steps to be made aware of all potential interests in the property. If purchasers do not take sufficient steps to uncover additional documents, they may be bound by those existing interests, such as the purchasers were in Ferguson v Tejpar which was recently heard before the Court of King’s Bench of Alberta.
Since 1887, Alberta has used the Torrens system of land ownership and transfer. Under this type of system, land titles and the documents registered against them are held by the Land Titles Office. The Office guarantees the accuracy of the titles.
Titles to properties are available on a register. The current certificate of title contains a lot of information, including the current owner’s identity, as well as a list of other registered interests in the land, such as claims or burdens in favour of other people like mortgages, caveats and easements.
However, not all information about the property is contained in the certificate of title. Therefore, it is sometimes necessary to look beyond the certificate of title to understand the various interests.
In the recent case of Ferguson v Tejpar, the respondents considered buying a piece of property in Elbow Park, Calgary, and then subdividing it. They checked the title to the property and noticed that there was a caveat registered against the title in 1948 in favour of the Canadian Pacific Railway Company (“CP Rail”). A caveat is a document warning that someone other than the registered owner is claiming an interest in the property.
The respondents asked the Land Titles Office for a copy of the instrument underlying the caveat, but the Office notified them that the instrument had been lost, mislaid or destroyed. This notification took the form of a certificate issued under section 21 of the Alberta Land Titles Act.
Section 21 of the Land Titles Land Titles Act provides that when the Land Titles Office certifies that it cannot produce an instrument or caveat because it has been destroyed or lost and another record has not been made, a person having an interest in the land can apply to the court for an order.
The application must be served on all affected parties before the court deals with the instrument or caveat in any manner that it considers appropriate.
The respondents made an offer to purchase the property. They then asked the sellers to remove the caveat or reduce the price. When this proposal was rejected, they contacted CP Rail. They also spoke to the President of the Elbow Park Residents Association, who said that she did not see an issue with subdividing the lot, but noted there was a planning committee process for approval.
The respondents decided to remove their conditions to purchase the lot. CP Rail later said that it did not possess the instrument and provided them with a no-interest letter. The sale subsequently closed.
The owner of a neighbouring lot across the street became aware of the proposed subdivision and a dispute ensued. The same caveat is registered against his property, along with several other lots in the area.
One of the residents produced a copy of the instrument. It contained a number of restrictive covenants, including a “one residence, one lot” rule that prevents subdividing and building multiple residences.
The neighbour applied to the Court seeking to prevent the respondents from subdividing their lot.
The respondents argued that the caveat did not bind them because they were bona fide purchasers for value without notice of the caveat. They argued that they were not obliged to look beyond the title and should not be bound by the caveat if insufficient information on the title does not provide them with enough information to understand the interest claimed.
Justice Dario disagreed. Her Honour thought that the respondents’ efforts to investigate the nature of the interest were insufficient. The caveat mentioned on the title was a serious red flag and the respondents should have searched the titles of neighbouring properties and asked their owners for a copy of the instrument.
Despite noting the equitable factors in favour of granting an exemption to the respondents from the caveat, including the fact that an adjacent lot had been subdivided (however, the caveat was not registered on that title) and the fact that the respondents had made some enquiries, Justice Dario decided that the respondents were not bona fide purchasers for value without notice because they had notice of the restrictive covenant. As such, the caveat applied to their property.
Her Honour said that:
“If an instrument is destroyed, lost or cannot be found, the underlying purpose and objectives of the Torrens system are still met without invalidating the registration. First, the registration provides the prospective purchasers a warning, informing them there is a risk in purchasing the land. Second, the current legislation provides a mechanism to remove such registrations provided the party seeking a discharge takes reasonable steps to ensure all affected parties are given notice of such application.”
The skilled team of real estate lawyers at DBH Law in Calgary assists clients with both residential and commercial real estate transactions. We build strong relationships with every client and work to understand the intricate details of each transaction so that we can preserve your interests and advise you on your options throughout the process. In the event of a real estate dispute, our lawyers have the experience and resources to advocate on your behalf. Please get in touch with us online or by phone at 403-252-9937 to speak with a member of our real estate team regarding your real estate needs.