You are on page 1of 15

Chapter 15Real Property: Interests and Leases

CHAPTER 15
REAL PROPERTY: INTERESTS AND LEASES

REVIEW QUESTIONS
1. The giant carrot theory was based on the Latin phrase cuius est solum, eius est
usque ad coelum et ad inferos, which means whoever owns the soil, it is theirs all the
way up to Heaven and down to Hell. According to that theory, a person who owned a
piece of land also owned the ground below to the centre of the Earth and the skies above
to eternity. In effect, a landowners rights were conceived in terms of an enormous slice
of the universeroughly carrot shapedthat extended from the middle of the Earth and
out into the heavens.

Whatever validity that theory may have held in the past, it no longer forms part of Anglo-
Canadian law. A landowners rights are not necessarily confined to the thin strip of soil at
the surface of the planet. Rights do extend down into the ground and up into the skies.
They do so, however, only to a reasonable extent. A landowner therefore may complain
of a construction crane swinging overhead, but not a jet flying at a great height. (The
limits to the tort of trespass were discussed in Chapter 4.)

2. The statement is true in a technical, legal sense. In the vast majority of situations
that are relevant to business people, however, land practically is owned by the person
(either a human or a corporation) with the fee simple. The Crowns ultimate title becomes
relevant only if, exceptionally, the owner of the fee simple dies without either a will (or
testament) that gives the property to a designated beneficiary, or an heir who acquires the
property by way of intestacy. Since the land must be owned by someone, the property
ultimately passes back to the Crown.

3. The statement is not entirely true. The owner of the fee simple in a piece of land
does have a large bundle of rights. It can dispose of the land at any time and by various
means (eg gift, sale, lease), or it can retain the property for life. And if the property is
retained for life, it can be the subject of a disposition after death through a will or
intestacy. Moreover, while a person owns a property, it generally is free to use and abuse
the land as it chooses. There are, however, at least three important restrictions on the
rights of a landowner.
First, as discussed in Chapter 5, a person who possesses land must avoid
committing torts like occupiers liability, nuisance, and the rule in Rylands v
Fletcher.
Second, land use is subject to various forms of regulation. For instance, as
discussed in Chapter 25, governments are increasingly creating regulations to
prevent people from using their property in ways that hurt the environment.
Furthermore, every municipality in Canada uses zoning and planning regulations
to control the types of activities that occur within certain areas.
Finally, if property is required for a public purpose (such as the construction of a
new bridge or the widening of a highway), the government can expropriate it. The
landowner will be entitled to compensation, but cannot insist upon keeping the
land. Similarly, even if the government does not expropriate a section of land, it
15-1
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

may exercise a right to build part of a sewer system underground or run telephone
wires overhead.

4. The statement is partly true and partly false. It obviously is true that it is
impossible to to know the day on which Elizabeth II will die. The implication of that fact
for land holding, however, depends upon the nature of the estate.

A life estate entitles a person to possess a piece of land for as long as a particular person
lives. The estate is measured by the duration of the life. Usually, the relevant life is the
life of the estate holder. For example, I may create a life estate that allows you to possess
Blackacre for as long as you live. (Once you die, the property either comes back to me or
my heirs by way of a reversion, or goes to a third party that I have designated as the
remainderman.) It also is possible, however, for your life estate to be measured by the life
of someone other than yourself. I therefore could create a life estate that allows you to
possess Blackacre as long as Elizabeth II is alive.

A lease, in contrast, allows a person to possess a piece of land for a specific time period.
That period may be long or short (eg 99 years or one day). It may be automatically
renewable or it may consist of a single term. In all events, however, the duration must be
stipulated at the outset in terms of years, months, and days. It must be possible, at the
time that the lease is created, to know exactly when the term will expire and the lease will
end. For that reason, it would be impossible for me to grant you a lease of Blackacre that
lasts as long as Elizabeth II is alive.

Although a lease could not be measured exclusively by Queen Elizabeth IIs life, it is
possible for a lease to be brought to an end upon her death, as long as the term of the
lease otherwise is defined by a set duration. I therefore could grant to you a lease of
Blackacre that lasts for 999 years or as long as Elizabeth II is alive (whichever is shorter).
Because the maximum duration is fixed, the lease is valid even though it may (certainly
will) experience a premature termination.

5. A life estate generally is unattractive in a commercial context for a very simple


reason. A life estate provides the right to exclusive possession of a piece of property
during the relevant life (which is usually the life of the person who holds the interest).
Significantly, when the relevant person dies and the life estate comes to an end, the
property does not pass through the will or intestacy of the person who owned the life
estate. Rather, it either reverts to the person from whom the life estate was acquired, or
passes, as a remainder interest, to someone chosen by the person from whom the life
estate was acquired.

In the commercial context, a life estate is unappealing because the property interest
automatically comes to an end as soon as the relevant person dies. And because there is
no way of knowing when any given person will die, a life estate creates a great deal of
uncertainty.

15-2
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

6. The right of survivorship arises under a joint tenancy. A joint tenancy occurs when
two or more people share exactly the same, undivided interest in a piece of land. When
one of the joint tenants dies, that persons interest automatically passes to the remaining
joint tenants. The deceased, in other words, does not have the right to dispose of his or
her interest in the land through a will or intestacy. That process can be repeated until the
last surviving joint tenant acquires the entire property.

Joint tenancy, which carries the right of survivorship, must be contrast with co-
ownership, which does not. Co-ownership also involves undivided ownership in a single
piece of land, but the co-owners interests do not have to be exactly the same. For
instance, one party may have a larger interest than the other, or may acquire it at a later
time than the other.

A joint tenancy can be brought to an end, thereby eliminating the right of survivorship, in
two ways.
Severance occurs when a joint tenant deals with the property in a way that is
inconsistent with joint ownership. Assume, for instance, that there are three joint
tenants: A, B, and C. C sells her interest to D. Since D acquired his interest at a
different time than A and B, he is not a joint tenant. A and B remain joint tenants
among themselves, but they are now co-tenants with respect to D.
Partition occurs when there is a division of either the property or its sale proceeds.
(Partition can be used to bring either a joint tenancy or a co-tenancy to an end.)
Partition is explained in more detail in the next answer.

7. The process of partition can be used to bring either a joint tenancy or a co-tenancy
to an end. In either of those situations, the parties begin with shared, undivided ownership
in a single piece of land. They may decide, for whatever reason, that they no longer wish
to continue on with that relationship. They may agree among themselves as to who gets
which sections of the land. But if they cannot do so, they can ask a judge to resolve the
matter. The courts generally have a broad discretion in deciding whether to physically
divide the land, sell the land and divide the proceeds, or refuse relief altogether.

8. The statement is not true. Shared ownership exists when two or more parties share
undivided ownership of a single piece of property. No party can assert exclusive
ownership over the whole or any part. On the contrary, each party enjoys an interest in
every part of the property.

There are two forms of shared ownership. While the proposition holds true for one
species of shared ownership, it does not hold true of the other.
Joint Ownership Joint ownership exists when all of the parties have exactly
the same interests in the affected land. For example, if Blackacre is shared
amongst four people, each person must hold an undivided quarter share, each
party must have acquired the interest at the same time as the others.
Co-ownership Co-ownership exists anytime that two or more parties share
undivided interests in a piece of land. There is no requirement, however, that each
party holds exactly the same interest. Accordingly, co-ownership may exist if four

15-3
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

parties share ownership of Blackacre in respective shares of 40%, 30%, 20%, and
10%. So too, co-ownership may exist if the parties acquired their respective
interests at different times.

9. An interest that runs with the land is an interest that affects two properties, that
was created between two landowners, and that continues to exist even if one or both of
the original landowners sells their interest to outsiders. The text described two interests
that may run with the land.
An easement is a right to use a neighbours land. For example, one neighbour may
allow another to use a pond, or one neighbour may promise to refrain from
erecting a building that would diminish the sunlight that reaches the others house.
An easement can only exist between neighbours. While the properties do not
necessarily have to be touching, they do have to be reasonably close together. One
party must have the dominant tenement (which is the property that benefits from
the easement) and the other party must have the servient tenement (which is the
property that accommodates the easement). As long as those requirements are
met, an easement can run with the land it can apply even if different people
acquire possession of the affected properties. An easement can be created
expressly, by necessary implication, or through prescription.
A restrictive covenant is a promise to use a piece of land in a way that benefits
one property and burdens another. It is like an easement because it requires a
dominant tenement and a servient tenement. In other respects, however, it is quite
different. First, while an easement can sometimes arise through prescription, a
restrictive covenant can only be created by agreement. Second, a restrictive
covenant never allows me to use your land. It merely limits how you can use your
own property. The precise rules that govern the enforcement of restrictive
covenants is quite complex and is explained in the text.

10. Condominiums entail a unique mix of individual ownership and shared


ownership. The owner of a condominium unit individually owns a particular part of the
whole (eg an apartment-like dwelling, a store) and shares ownership (almost invariably in
the form of co-ownership) of the communal parts of the property (eg the stairwells, the
halls, the swimming pool).

In a sense, a condominium is a small community. And like other communities, it requires


decisions to be made and enforced. For those reasons, it will have a condominium
corporation, which is a non-profit organization that manages the complex. That
corporation fixes rules and regulations regarding the use of both the individual units (eg a
prohibition of the use of clothes lines on unit balconies) and the common areas (eg hours
of operation for the swimming pool). Each individual unit owner is entitled to vote on
matters concerning the corporation, such as the creation of bylaws and the election of
directors. In return, each individual unit owner is required to pay condominium fees,
which are effectively the communitys tax.

11. As explained in footnote 14, ownership of land may be acquired through the
similar process of adverse possession. If I openly take possession of your land, and

15-4
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

continuously treat it as my own for a long time (usually 20 years), I may become the
owner of that property if you fail to assert your rights against me. Significantly, that
doctrine has generally been modified or abolished in those parts of the country that use
the land title system of registration (as explained in the next Chapter).

12. A public, or statutory, easement occurs when legislation allows a utility company,
or similar organization, to bury television cables, dig sewers, and whatnot under privately
owned land. Although such rights are often called public easements, they are not true
easements because there is no dominant tenement. The right exists even if the utility
company does not own a neighbouring property.

13. A licence is permission to act in a way that would otherwise be prohibited. Unlike
an easement, a licence is not an interest in land, it does not run with the property, and it
can be revoked at any time (subject to any contractual rights that may exist between the
parties). Furthermore, because a licence is not an easement, it does not require the
existence of dominant and subservient tenements.

14. A positive covenant is a persons promise to do something, such as a promise to


repair a fence on an annual basis. A negative covenant is a persons promise not to do
something, such as a promise to refrain from constructing a radio tower. Courts are more
willing to enforce negative covenants, than positive covenants. A negative covenant is
less intrusive on freedom of choice than is a positive covenant. While honouring a
negative covenant by not doing something, a person can devote all of his or her resources
toward other activities. In contrast, while honouring a positive covenant by doing
something, a person cannot devote those same resources to any other activity.

A restrictive covenant may be capable of running with the land (as explained in the
answer to Review Question #9). The covenant will be created between two people who
own neighbouring properties. That covenant obviously is enforceable between those
parties. However, it may also be enforceable by or against a party that later buys one of
the affected properties from the original owner. It is in that regard that the distinction
between positive and negative covenants is important. If the servient tenement (which is
the property from which the obligation is owed) is sold, and if the other requirements for
running with the land are satisfied, the purchaser will be subject to the covenant if it is
negative, but not if it is positive.

15. The concept of a building scheme covenant presumes an understanding of a


restrictive covenant.

A restrictive covenant is an enforceable promise to use a piece of land in a way that


benefits one property and burdens another. It involves two parties. The dominant
tenement is the property that benefits from the relationship; the servient tenement is the
property that accommodates that benefit. The relationship must be created by agreement,
and rather than allowing one property owner to use land belonging to another property
owner, it merely limits the ways in which the owner of the servient tenement can use its
land. Finally, depending upon the circumstances, a restrictive covenant may run with the

15-5
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

landie be enforced against a successor in title to a servient tenementif the covenant


is negative rather than positive.

A building scheme covenant is a restrictive covenant writ large. It does not apply only as
between the two parties (or successors in title) to a private agreement. Instead, it applies
across an entire block or neighbourhood. When developing a new community, the
developer may insert a building scheme covenant that binds all of the properties in the
neighbourhood. That ensures that everyone must obey certain standards (eg regarding
landscaping or painting). The new homeowners lose some measure of freedom (eg an
idiosyncratic homeowner cannot paint his or her house brilliant purple with pink trim),
but they also gain an assurance that their property values will not be adversely affected by
their neighbours poor decisions.

16. A profit prendre is a right to take something valuable away from another
persons property. That sort of right can apply to minerals and other natural things, like
timber and deer. A profit prendre is an interest in land, but not an automatic right to the
things in question. Consequently, for instance, if you buy a profit prendre with respect
to the trees on a particular property, the timber does not belong to you until you actually
harvest it from the land.

17. An interest in land technically is not a lease unless it exists for a definite duration.
In other words, it must be possible, at the outset, to determine how long the interest will
last. (The possibility of renewal does not defeat that requirement.)
A tenancy at will exists if there is no set term and either party can terminate the
lease at any time. Because there is no definite duration, it is sometimes said that a
tenancy at will is not really a leasehold estate. Nevertheless, there is at least an
implicit agreement between the parties and the tenant is liable to pay rent.
Tenancies at will most often arise when the owner of a property allows a potential
purchaser to move in before the sale is finalized, or when a tenant remains on the
premises with the landlords consent after the end of a lease.
A tenancy at sufferance occurs when a tenant continues to possess the premises at
the end of a lease without the landlords permission. In that situation, there is not
really a lease because the parties do not even have an implied agreement. Indeed,
if the tenant does not vacate the property within a reasonable time after being
asked to do so, it commits the tort of trespass and the landlord can take steps
toward forcible removal. And finally, while there is no obligation to pay rent
(because there is no tenancy), the person in possession is required to pay
compensation for the use and occupation of the property.

18. An assignment of a lease occurs when T1, the original tenant (ie assignor),
assigns a lease to T2, a new tenant (ie assignee). For the most part, T2 steps into the shoes
of T1. The lease then exists between the landlord and T2. There are a few restrictions
upon the effect of the assignment of a lease, however. (1) Most leases state that
assignment can occur only with the landlords consent. It also usually is stated that the
landlord cannot unreasonably withhold consent. (2) The assignment of a lease affects
only real covenants contained in the lease. Real covenants pertain to rights and

15-6
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

obligations directly related to the land. They can be contrasted with personal obligations.
(3) Unless the landlord agrees to release the original tenant, T1 may be held liable if T2
fails to honour the terms of the lease. T1 therefore should require T2 to both honour the
lease and compensate T1 for any liability imposed upon T1 by the landlord. (4) The
assignment must cover the entire term of the original lease. If it falls shorteven by a
single daythen it is not an assignment, but rather a sub-lease.

A sub-lease does not place the new tenant into the original tenants shoes under the terms
of the original lease. In contrast, a sub-lease occurs when T1, the original tenant, acts as a
new landlord, L2, and creates a new lease with the new tenant, T2. In that situation, two
leases co-exist. The original lease applies between T1 and L1. The sub-lease applies
between the T1 (as L2) and T2. (The original lease most likely prohibited the creation of
a sub-lease without the consentnot to be unreasonably withheldof L1.)

19. The breach of a commercial lease is a breach of contract and therefore supports
the usual contractual remedies, including compensatory damages, injunctions, and
discharge. There are two other special forms of relief that may be available to a landlord
if the tenant commits a serious breach.
If the tenant commits a serious breach, such as not paying the rent, the landlord
may be entitled to exercise a right of eviction (sometimes called a right of re-
entry) in order to resume possession of the premises before the end of the lease.
That remedy often creates hardship for the tenant because it results in a forfeiture.
The tenant loses its interest in the property. Consequently, even if a tenant has
committed a serious breach, a court may grant relief from forfeiture by allowing
that person to make amends and to retain possession of the property. Each
jurisdiction has detailed legislation regarding evictions.
If a tenant is not evicted for non-payment, it may be subject to the remedy of
distress. Distress occurs when the landlord seizes the tenants belongings and sells
them in order to pay the rent. Once again, each jurisdiction has detailed legislation
on point.

20. The legal system draws a distinction between commercial leases and residential
leases. A commercial lease provides a person or organization with a place in which to
conduct business. A residential lease, in contrast, provides a place to live. The law
therefore has much more incentive to become involved in the landlord-tenant
relationship. It may be acceptable to allow two businesses to freely negotiate the terms of
their agreement. It seems unfair and unrealistic, however, to expect a residential tenant to
do the same. In that situation, there is likely a tremendous difference in bargaining
powers between the parties, especially when accommodation is scarce. Almost by
definition, a residential tenant has limited resources. Consequently, every jurisdiction in
Canada has extensive legislation that regulates residential tenancies by requiring some
terms, prohibiting others, providing mechanisms for resolving disputes, and so on.

Although the legislation varies between jurisdictions, the statutes generally draw five
important distinctions between commercial and residential tenancies.

15-7
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

In the commercial context, it is usually possible to terminate a periodic tenancy


by giving notice equal to the length of one term. Residential notice periods,
however, tend to be much longer (for example, 60 or 90 days for a monthly lease).
Likewise, in the residential context, a periodic tenancy may automatically arise at
the end of fixed term lease unless notice was given.
Commercial parties are generally free to agree upon any price. Residential leases,
in contrast, are governed by various rent control mechanisms that prevent
landlords from gouging tenants.
A commercial landlord may be entitled, under the right of distress, to seize and
sell a tenants belongings if rent is not paid. However, that right usually is not
available against a residential tenant.
Unlike a commercial landlord, a residential landlord has a statutory obligation to
repair and maintain the property.
Although a commercial landlord may be relieved of the need to mitigate when a
tenant wrongfully vacates a property, a residential landlord is generally required
to take reasonable steps to minimize the losses that result from a breach.

CASES & PROBLEMS


1. This question raises several issues dealing with joint tenancies. The problem is
most easily addressed in five points.
A joint tenancy is a form of shared ownership in which the parties share exactly
the same undivided interests in a single piece of land.
Because the interests under a joint tenancy are undivided, Douglas had the right
(as did Serena) to deal with the whole property, and not just half of it.
Nevertheless, because Serena was equally entitled to the property, she is entitled
to share in the benefits that are created by the land. She therefore is entitled to half
of the rent that Marcus Inc paid to Douglas during the term of the lease. Douglas
would, however, be entitled to deduct any expenses that he incurred in connection
with the lease. (The situation would have been different if Douglas had earned a
profit through his own labour eg picking berries or felling timber.) Since
Serena has passed away, Douglas must pay the money to her estate, which will, in
turn, hand it over to Rumana.
By leaving a will that gave everything that she owned to Rumana, Serena
attempted to pass her interest in the land to her sister. She was, however, unable to
do so. A key feature of joint tenancy is the right of survivorship. That means that
when one joint tenant dies, his or her interest automatically passes to the surviving
joint tenant(s). Joint tenants are therefore incapable of passing their interest to
another person by way of a will. Douglas will therefore receive Serenas half
interest in the property, and thereby acquire sole ownership over the property.
It might also seem that an issue arises from the fact that the lease that Douglas
created with Marcus Inc was oral, rather than written. In fact, however, while a
contract for an interest in land is a type of agreement that generally needs to be
evidenced in writing (as discussed in Chapter 10), the effect of non-compliance is
merely a lack of enforceability. Consequently, while an issue may have arisen
between Douglas and Marcus Inc if either party had attempted to break the lease,

15-8
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

the lack of writing is irrelevant now that the lease has been fully performed and
terminated.

2. This case raises several issues dealing with life estates. A life estate is an interest
in land that allows a person to enjoy exclusive possession of the property for the duration
of the relevant life time. Raj created two successive life estates.
First, Ludwig was entitled to exclusive possession of Blackacre during Rajs life
time. That arrangement was somewhat unusual. In most cases, the relevant life
belongs to the person who holds the interest. There is, however, no rule that
prevents a life estate from being defined by some other life.
Second, after Raj died and Ludwigs life estate came to an end, Elise was entitled
to enjoy exclusive possession of Blackacre during her own life time.
It is important to appreciate that, there is another important interest in Blackacre,
in addition to the two life estates. At the beginning of the story, Raj held the fee
simple in Blackacre. That meant that he was entitled to exclusive possession of
Blackacre for an indefinite duration. He was fully entitled to give away two
successive life estates, to Ludwig and Elise. However, even after he had done so,
he still had something left, because he had not disposed of the property for the
period following Elises death. Consequently, after Elise dies, Blackacre will
come back to Raj (or his estate, since he will, by definition, already be dead) by
way of a reversionary interest. Unless Raj has otherwise disposed of that interest,
Blackacre will pass to his next-of-kin. (It is not possible on the facts that have
been provided to identify that person.)

The real dispute in this case concerns the doctrine of waste. The doctrine of waste is
concerned with fairness between successive interests. It imposes some duty on the holder
of a life estate to protect the property for subsequent holders.

Although he holds the current interest in Blackacre, Ludwig has done nothing to protect
the property. Blackacre is, as a result, falling in value. As holders of subsequent interests,
Elise, and presumably Raj (on behalf of his own estate), are unhappy about that fact. As a
matter of law, however, they cannot compel Ludwig to positively act in such a way as to
benefit the land. The doctrine of waste normally only compels the holder of a life estate
to refrain from doing anything that would diminish the value of the land. In other words,
while the doctrine of waste may prevent harmful actions, it cannot prevent harmful
omissions.

3. The question is intended to focus the students attention on the difference between
co-ownership and joint ownership, and on the nature of condominiums. The obvious
problem with section 67(2) is that it creates joint ownership, rather than co-ownership,
for the common areas. The highly inconvenient result is that while an individual unit
holder would have an interest in the common areas, that persons heir would not. Upon
death, the individual unit would be passed to the heir by virtue of the fact that the
deceased held a flying fee in that property. The interest in the common areas of the
condominium, however, would pass to the remaining unit holders by virtue of their right
of survivorship. The solution to the problem would be for the statute to simply say that

15-9
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

the common areas are held under shared ownership in the form of a co-tenancy. That
arrangement would allow both an individual unit and an interest in the common areas to
pass to a deceaseds heir.

Students should also notice that, practically speaking, section 67(2) simply could not
work. A joint tenancy requires that every person hold exactly the same interest. That
requirement means, for instance, that every joint tenant must acquire the interest at the
same time. Condominium interests, however, almost necessarily will be transferred at
some point. And when a new owner is brought aboard (for example, through sale or inter
vivos gift), that person becomes a co-tenant, rather than a joint tenant, with respect to the
other unit owners. In that regard, the joint tenancy is severed.

4. The parties lease likely contained a clause that required the landlords consent to
the assignment of the lease, but also prohibited the landlord from unreasonably
withholding that consent. Such a clause reasonably protects both parties, without unduly
favouring one over the other. In the case upon which this exercise is based, the lease read:

The tenant shall not assign this lease or sublet whole or any part of the premises
unless it first obtains a consent of the landlord in writing, which consent shall not
unreasonably be withheld (emphasis added) and the tenant hereby waives it right
to the benefit of any present or future act of Legislature of Ontario which would
allow the tenant to assign this lease or sublet the premises without the landlords
consent.

Assuming that such a clause does exist in this exercise, it is most likely, as the judge ion
the actual case held, that Belisario acted unreasonably in refusing to consent unless
Cvokic terminated his legal actions.

If so, then Belisario is liable for a breach of contract (lease). As in Cvokic v Belisario, the
plaintiff would be entitled to the value of the loss that was created by the breach. The
breach caused Cvokic to lose a potential buyer who was willing to purchase the business
for $27 000. That amount therefore represents the appropriate award of damages.

[Based on Cvokic v Belisario OJ No 2766 (Ont SCJ).]

5. A restrictive covenant is a promise to use piece of land in a way that benefits one
property and burdens another. A restrictive covenant does not entitle anyone to possession
of land. Furthermore, unlike an easement, a restrictive covenant does not entitle a person
to use anothers land. A restrictive covenant is, however, a non-possessory interest in land
that prevents the affected landowner from acting in certain ways with respect to the
affected property. As a result, it may run with the land in the sense that it may be
enforced even if neither of the original parties remains involved in the facts.

Significantly, however, a restrictive covenant requires certain requirements to be met.


Like an easement, a restrictive covenant requires that one piece of land (a dominant
tenement) be affected for the benefit of another piece of land (a servient tenement). That

15-10
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

requirement cannot be satisfied on the facts of this case. Although the land purchased by
the city was to be burdened by the conditions and obligations that Simpson identified,
there is no dominant tenement to enjoy the corresponding benefit. The obligations, in that
sense, are merely personal. As a result, they cannot qualify as restrictive covenants and
they cannot run with the land.

Although the facts probably provide insufficient information, it is interesting to observe


that in the decision upon which this exercise is based, the court held in favour of the
Society on the basis of a trust. Indeed, the court held that the very same factors that
caused the restrictive covenant to fail supported the existence of a charitable purpose trust
that subjected the land, in perpetuity, to the conditions imposed by Simpson.
Charitable Purpose Trust A charitable purpose trust is a trust that is
administered for a charitable purpose, rather than for a person. The purposes in
this instance would be benefits to the local community, public works, and social
and recreatioan. One of the benefits of such an arrangement is that the rules
against perpetuities generally do not apply.
Prohibition Against Sale By prohibiting the city from selling the property,
Simpson was indicating that the conditions were to apply in perpetuity.
Absence of Dominant Tenement The absence of any dominant tenement from
Simpsons plans indicate his desire to benefit not a person (ie the owner of the
dominant tenement), but rather a purpose.

[Based on Save the Heritage Simpson Covenant Society v Kelowna (City) (2008) 296
DLR (4th) 419 (BC SC).]

6. The following answer assumes that the traditional common law rules (as codified
or modified by statute) govern the situation, and that the doctrine of prescription has not
been abolished by the operation of a land titles system (as described in Chapter 16).

A cottage owner may acquire a right to use Cloudy Hill Road in one of two ways. First,
the offer extended by Fall River Farms Inc may be accepted by any given cottage owner.
If so, then that particular cottage owner (but not others) would acquire a right to use the
road under the terms of the parties agreement. The cottage owners right would consist
of a license. That license, however, would suffer from a number of disadvantages. It
would be limited to 50 years. Much more importantly, it would not run with the land.
Because the rights acquired under the contract with Fall River Farms Inc would be non-
transferable, the license would not operate if the cottage owner who actually purchased
the license sold the property. A person who contracted with Fall River Farms Inc
consequently would find it difficult to ever sell the cottage. No sensible purchaser would
be willing to buy a cottage that could not be accessed by means of Cloudy Hill Road.

Fortunately for the cottage owners, there appears to be no need to contract with Fall River
Farms Inc. Although the farm corporation currently holds title to the land upon which the
road runs, the cottage owners almost certainly have acquired easements by prescription.

15-11
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

The doctrine of prescription holds that an interest in land may be acquiredwithout


purchaseby open use or occupation of the affected property for a long period (usually
10 or 20 years), without secrecy, without permission, and without complaint by the title
holder.

The doctrine of prescription may operate to create an easement. An easement is a right to


use another persons land in a particular way. That right may exist as between
neighbouring properties (ie properties that are in close physical proximity, if not actually
touching) that consist of a dominant tenement and a servient tenement. The dominant
tenement is the property that benefits from the exercise of the easement. The servient
tenement is the property that bears the burden of the easement. On the facts of this
exercise, the land owned by Fall River Farms Inc would be the servient tenement insofar
as it could be used as Cloudy Hill Road. The lands owned by the cottage owners would
be the dominant tenements insofar as they benefitted from the use of the road.

Finally, as between a contractual license and an easement by prescription, the latter is far
preferable in the current circumstances. Unlike a license, an easement may run with the
land. As a result, the establishment of an easement would benefit not only the current
cottage owners, but also all of those people who subsequently acquire title to the existing
cottages. As a result, recognition of an easement would both enhance the value of the
individual cottages and facilitate the transfer of cottage titles.

In the case upon which this exercise is based, the Ontario Court of Appeal upheld the trial
judges finding that the cottage owners open use of the road for many years gave rise to
an easement by prescription.

[Based on Cloudy Hill Springbrook Farms Inc v Trent Hills (Municipality) 2011 ONCA
179 (Ont CA), affg 2010 ONSC 1123 (Ont SCJ).]

7. Although this exercise does not require a long answer, it does require students to
understand the business implications of leases and assignments. The original lease locked
BiNovo into a particular allocation of risks. Rent was set at $100 per square metre and it
could be raised only in accordance with changes in market rates. Furthermore, although
the initial term of the lease was 10 years, the lessee had the option of renewing the
arrangement for two additional terms of 10 years each. As a result, as long as the lease
remained in force, BiNovo might have to wait 30 years before it had another chance to
get a better bargain for itself. BiNovo clearly came to regret the lease that it originally
signed with Horseshoe.

On the facts, BiNovo was able to escape from the original lease by refusing to allow
Carnival Properties to step into Tyrus Cobbs shoes. BiNovo then made sure that the new
lease with Carnival Properties contained more favourable terms.

In doing so, however, BiNovo most likely committed a wrong against Tyrus Cobb by
breaching a term of the original lease. The facts state that the original lease contained
the terms usually found in a commercial lease. As explained in the text, one of the usual

15-12
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

terms has two parts. The first part states that a lessee cannot assign the lease without the
lessors consent. The second part then states that the lessor cannot unreasonably
withhold consent. (Even if the parties agreement does not expressly contain that
stipulation, legislation in most provinces prohibits a lessor from unreasonably
withholding consent to an assignment.)

The explanation for BiNovos intransigence is obvious. Although it claimed that it was
unwilling to accept Carnival Properties as a tenant because of a fear that the rent would
not be paid, that allegation was absurd on its face. In truth, BiNovo simply realized that
an assignment allows a new party to step into the position of lessee, but otherwise
maintains enforcement of the original contract. An assignment, in other words, would
prevent BiNovo from unilaterally raising the rent, even though the tenant would be
Carnival Properties, rather than Tyrus Cobb.

In the case on which this exercise is based, the Ontario Court of Appeal upheld the trial
judges finding that the lessors behaviour was, in the circumstances, unreasonable. While
refusing to say that it would always be unreasonable for a lessor to withhold consent in
order to secure a new lease with higher rent, the appellate court agreed that the party in
BiNovos position had acted improperly. Because of a lack of evidence, the case was
returned to trial for an assessment of damages suffered by the party in Tyrus Cobbs
position.

[Based on Tradedge Inc (cob Shoeless Joes) v Tri-Novo Group Inc (2009) 86 RPR (4th)
13 (Ont CA), affg (2009) 84 RPR (4th) 84 (Ont SCJ).]

8. It is easiest to address this problem in four stages.


The parties initial agreement created a fixed term lease. That lease automatically
expired at the end of the five year period even though neither party had provided
notice to quit.
However, a new tenancy was then implicitly created as a result of the fact that
Kostal continued to pay rent and Solomon received those payments without
objection.
That new lease was either a periodic tenancy or a tenancy at will. It was not a
tenancy at sufferance because Kostal stayed on with Solomons implied
permission. In choosing between a periodic tenancy and a tenancy at will, a court
would look at all of the circumstances. Given that rent was paid and received on a
monthly basis, it is strongly arguable that the parties created a periodic tenancy
based on monthly terms.
Assuming that the parties implicitly created a periodic tenancy based on monthly
terms, either party could terminate the lease by providing one clear months
notice. A clear months notice must be given before the commencement of the
month in question. Since Kostal gave notice on the first day of July, he remained
responsible for Augusts rent.

9. It is easiest to address this problem in four stages.

15-13
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

Unless they otherwise agree, neither the landlord nor the tenant is required to
repair leased premises. The tenant is merely required to act in a tenant-like
manner and to avoid intentionally or negligently damaging the property.
In this situation, however, the defective plumbing represents more than a mere
failure to repair. Schultz covenanted that he would provide Takahana with quiet
possession. Even if Schultz had not done so expressly, the same covenant would
have been implied as a matter of law. In either event, that covenant requires,
among other things, that the tenant not be substantially deprived of the enjoyment
of the property. In this case, the problem with the toilets denies Takahana of
effectively the whole purpose of the lease (ie the ability to operate a restaurant).
Consequently, although the lease did not require Schultz to repair the premises,
his failure to do so amounted to a breach of the covenant to provide quiet
possession.
The tenants obligation to pay rent is normally independent of the other terms in a
commercial lease. Given the substantial consequences of Schultzs breach,
however, Takahana had the right to discharge the agreement, thereby bringing to
an end his obligation to pay rent. [based on Buttimer v Bettz (1914) 6 WWR 22
(BC Co Ct)]

10. While most contracts are valid and enforceable even if they are entirely oral, the
Statute of Frauds requires that a lease for more than three years is valid, but
unenforceable, unless it is evidenced in writing. Since the option to renew was for more
than three years, and since only Juliet Hwong signed the document, it is not enforceable
against Yip Cheung, notwithstanding his oral agreement.

[Based on Lam v Fashion Hair Culture Inc [2007] OJ No 4099 (Ont SCJ).]

11. The purpose of this question is to stress the fact that an original tenant can still
bear responsibility even after assigning a lease to a third party. Students should be
pointed to the risk management issues that arise as a result of that rule.
Initially, Wilson was the landlord and Frank was the tenant under the lease.
The lease allowed Frank to assign his interest, but only with Wilsons consent.
Paragraph 5 also stated, however, that Wilson was not entitled to unreasonably
withhold his consent. Although it is obvious with hindsight that Janine was an
undesirable tenant, there was no basis at the time of the assignment for Wilson to
withhold his consent. Consequently, even though the landlord did not expressly
respond to the tenants request to assign the lease, a court would recognize a valid
assignment.
Nevertheless, although Franks interest under the lease was (substantially)
assigned to Janine, he remained liable to Wilson as a result of the contract that
those two parties signed. Consequently, because Janine did not pay the rent or pay
the cost of repairs, as required by the lease, Frank remains liable to do so.

12. This question is intended to test students knowledge of the rules of mitigation as
they apply to: (i) contracts of sale, (ii) commercial leases, and (iii) residential leases.

15-14
Copyright 2014 Pearson Canada Inc.
Chapter 15Real Property: Interests and Leases

Ishtla is clearly not liable for the full value of the book. The duty to mitigate generally
applies under a contract for the sale of goods. Consequently, although Igor undeniably
suffered a loss as a result of Ishtlas refusal to fulfill the agreement, his expectation
damages are reduced to the extent that he could have reasonably limited his loss. He
could have sold the rare book to the first person that Ishtla introduced for $4000.
Accordingly, he is only entitled to recover $1000 from Ishtla.

The situation is more complicated with respect to the lease. Additional information is
required in order to determine whether the parties lease was commercial or residential.
As often is true, the rules differ in the two contexts because of the need to protect
residential tenants from abuse by landlords. The law is more willing, in contrast, to treat
commercial parties as substantial equals.

If the lease is commercial, then the rule in Highway Properties Ltd v Kelly Douglas & Co
arguably applies. Igor therefore would have the option of allowing the premises to sit
empty and compelling Ishtla to pay the full value of the lease. However, if Igor did re-let
the property to a third party, Ishtlas liability would be reduced by the amount actually
paid by that third party to Igor.

If the parties lease was residential, Igor would have a duty to mitigate his losses and he
could not oblige Ishtla to pay the full amount remaining under the lease. He would be
required to make a reasonable effort to find a new tenant. Consequently, unless there was
something legitimately objectionable about the person that Ishtla introduced to him,
Igors rights against her would be reduced whether or not he actually leased the property
to that individual.

Finally, regardless of the nature of the lease, it may be possible for Ishtla to avoid
incurring liability to Igor by assigning her interest, or subletting the property, to a third
party. Her ability to do so might, however, be somewhat restricted by the terms of her
agreement with Igor.

15-15
Copyright 2014 Pearson Canada Inc.