Apr 19, 2019

Restrictive Covenants are not Forever in Ontario

Andrews v. Rago, 2019 ONSC 800 (CanLII)

Somebody who sells real estate has the legal right to restrict the use that the buyer makes of it. This is referred to as a restrictive covenant. It is registered on title, and therefore a restrictive covenant binds not just the original buyer but also anyone who buys it subsequently.

A restrictive covenant is often put in when the seller continues to own the neighboring property. The seller may not want the new owner to use the land for an activity that is noisy or unsightly (or blocks the sunlight). Similarly, a developer of a new subdivision may place restrictive covenants on all the lots to preserve common standards or a uniform look to the neighborhood.

In the case of commercial land, the seller may not want the buyer to set up a competing business. For example, in Silver Seven Corporate Centre Inc. v. 2871220 Canada Limited, 2017 ONSC 5091, Home Depot sold some surplus land in Ottawa, but restricted it to prevent the purchaser from using it to retail competing home renovation products.

The Conveyancing and Law of Property Act, R.S.O. 1990, in s. 61(1) states that the Superior Court has the power to remove restrictive covenants from title. However, the court in Silver Seven Corporate Centre Inc. ruled that the court should exercise this power sparingly: generally, when there is no opposition to the application, or when it is obvious that the restriction is obsolete.

Unlike an easement, which often requires Planning Act approval, the establishment of a restrictive covenant is entirely at the discretion of the private parties that establish it.

From a public policy perspective, it makes sense to have a mechanism for removing restrictive covenants whose original purpose has become obsolete. In some instances, they may pointlessly restrict the use of land when nobody cares about it anymore.

Ontario’s Land Titles Act also has a provision for the automatic expiry of restrictive covenants. However, the wording is somewhat puzzling. A judge had to go to considerable effort to interpret it for application to a dispute between two neighbours in the North York area of Toronto.

Neighbours Get into a Conflict over a Narrow Strip of Land

The case involved two next door neighbours in an older middle-class suburb of detached homes near Downsview Park. As sometimes happens with neighbours, what may appear to outsiders to be a minor dispute escalates into an expensive legal conflict. Combined legal fees for the two sides likely exceeded $50,000, and the losing party was required to pay $24,000 to the winner to compensate for her legal costs.

The facts are straightforward. The applicant who applied to remove the restrictive covenant was Ms. Andrews, the owner of no. 99, on a 37-foot wide lot. She had inherited this house from her parents, who built it in 1966. In order to obtain a lot that was at least 37 feet wide (the minimum allowed by the municipal bylaw), her parents had purchased a 3-foot wide strip from the owners of no. 97, the Ragos.

In agreeing to sell the 3-foot wide strip to accommodate their neighbours, the owners of no. 99 had attached some restrictive covenants and a right of way. The restrictive covenant prevented the purchaser of the strip from altering fences or hedges or removing anything that the owner of no. 97 placed on the strip.

One item that was on the 3-foot strip was a length of sidewalk. Ms. Andrews became concerned that the snow that was removed from it was getting onto her property and caused water leakage problems. She applied to abolish the restrictive covenant so that she would have the right to tear out the pavement, as well as deal with some other irritants.

Alternative Interpretations of the Land Titles Act

Covenants that run with the land have a long history under the common law, but some of the principles are now governed by section 119 of Ontario’s Land Titles Act. In this case, subsection 119(9) was in issue:

(9) Where a condition, restriction or covenant has been registered as annexed to or running with the land and no period or date was fixed for its expiry, the condition, restriction or covenant is deemed to have expired forty years after the condition, restriction or covenant was registered, and may be deleted from the register by the land registrar.

This states that restrictive covenants automatically expire after 40 years, unless the original covenant itself has something different in it. Although the provision has been in the Act since 1961, it appears that it has been little used. The judge observed that there have been few cases to offer a clear interpretation of it.

The Ragos responded that s. 119(9) did not apply to their covenant, as the covenant included the word “forever.” It is quite possible that this is how most people would regard it, which is why there has not been a previous dispute about it. However, the applicant’s counsel in this case seems to have provided a clever argument on the precise meaning of the words in the statute, which Justice Stinson accepted.

He used the principle that the plain meaning of the statute has to be taken into account. The word “expiry” means that something has a fixed date when it comes to an end. “Forever” means that there is no end, and therefore there was no fixed period here. Only a covenant with a fixed period can defeat the rule in s. 119(9). Therefore, the restrictive covenant had to come to an end after forty years, which in this case had already occurred in 2006.

Conclusion

Based on Justice Stinson’s interpretation, a specific period has to be stated in order to defeat the automatic application of the 40-year expiry of a restrictive covenant. However, the Land Titles Act places no restriction on what that period should be. Presumably, if the covenant between these parties had stated that it would come to an end after 1,000 years, that would have been upheld as valid. It would have defeated the 40-year default in the Act.

If this is a correct interpretation of the Act, it would be an assumption that the law does not want to rule out long-running restrictive covenants, but it wants the parties to think about exactly what they are agreeing to. Anybody crafting a new restrictive covenant in the future would be well advised to avoid using unlimited terms such as “forever.” Instead, they should determine the specific number of years for which they need the property to be bound by the agreement.

There must be many thousands of restrictive covenants registered in Ontario that used wording similar to the one in this case. One would have to conclude that the enforceability of these is now in doubt, though it is not certain that a different judge would apply the same interpretation.

Domenic Tudino commented
Thank you for bringing this case to everyone's attention. Do you know if the decision is being appealed ?