Jul 28, 2020

Spouses Build Home on Husband’s Father’s Land – Who Benefits?

Tomek v. Zabukovec, 2020 ONSC 2930 (CanLII)

In the process of obtaining a divorce, the husband and wife settled all their issues except for one: Whether either of them had a beneficial interest in a property the husband’s father owned, given that he had permitted them to build a house on it. (And the couple agreed that whatever the court decided, they would share the declared interest equally).

In 1988, the husband had helped his father find a 15-acre property in Caledon, which the father purchased himself using his savings and a mortgage. The father intended to have it severed into lots on which he would build and re-sell homes for a profit.

But even before applying for severance, the father told the husband he could take a 1.13-acre section and build himself a single-family home for his wife and children (the “House” portion). The father would keep the remaining 13.87 acres (the “Acreage”) for development purposes. After getting the father’s signature on the application, the husband got the necessary permits in 1989 and started construction, paying for it with money he and his wife had available. Importantly, that severance application was rejected soon after.

Pending an appeal, the husband continued to build and accepted financial help from his parents to do so. Unfortunately, that appeal was ultimately unsuccessful, and the husband was “devastated by the news”, the court said. Still, the court noted that “at one point shortly thereafter, his father put his hand on his shoulder and told him not to worry, as it would all be his when [the father] passed away.”

As it turned out, the father died without a Will in 2004, which meant that no provision had been made to bring the father’s promise to fruition.

The husband and wife continued to live in the home after that point, but separated in 2011. As part of their divorce, they raised the issue of property ownership. The father’s Estate contended that the husband and wife had merely been invited to build a house on a portion of the father’s property during a period where they were in a desperate financial position, but that there had never been an intent to gift them with the House portion.

The court disagreed. It noted that had the severance been granted, the severed lot would have been transferred to the husband for no consideration. Moreover, the court stressed that the husband and wife had made significant contributions to the property over the years:

The Husband and Wife and their young family moved into the house on the Property in the fall of 1989. It was far from complete. The only working sink in the home was in the laundry room. Over the following years, the Husband and Wife installed the kitchen, bathrooms, flooring and trim. They installed a sauna, improved the grounds, replaced the kitchen and windows at least one more time and replaced the roof at least twice before the trial. All of these improvements were funded by the Husband and Wife alone. … The Husband and Wife paid the property taxes and insurance premiums on the entire Property from the time they moved in.

In the end, the couple’s addition of a large single-family home on the House portion of the property, together with 30 years of upkeep and “sweat equity”, amounted to unjust enrichment benefitting the father’s present-day Estate. It was reasonable for them to expect to receive some benefit for the construction and ongoing improvements, which they had fully funded themselves.

With that said, the court rejected the idea there was an oral agreement between the husband/wife and the father, that the entire property would be conveyed to the couple in the future. At the time the property was purchased, everyone treated it as two separate units: The House portion belonging to the couple, and the Acreage belonging to the father. This continued after the father’s 2004 death.

The court ruled that while the father did not intend to give them the entire property, the spouses were entitled to a beneficial interest in it. The court was left to try to value a portion of a non-severable property as if it was severed; after “doing the math” with the help of valuation experts, it awarded the husband and wife joint beneficial ownership of 75% of the entire property through an unjust enrichment claim, which entitled them to a constructive trust. The Estate was granted the remaining 25%, which was to be distributed under the intestacy.

The court also ordered the whole property to be sold for no less than $810,000, with carriage of the sale being in the hands of the husband and wife who would be motivated to get the best price.

For the full text of the decision, see:

Tomek v. Zabukovec, 2020 ONSC 2930

[This post by Russell Alexander first appeared on FamilyLLB.com on July 28, 2020]