Feb 10, 2015

AREAS OF LAW: Property law; Repudiation of contracts; Restrictive covenants

Vallieres v Vozniak, 2014 ABCA 290 (CanLII)

A real property seller will be found to comply with Clause 1.5(b) in Alberta’s standard form contract for purchase and sale agreements, with respect to a non-financial covenant not affecting the property’s saleability, even if the property is in breach of the covenant, as long as the covenant is registered.~

BACKGROUND: The Appellants, Real Vallieres and Suzanne Weller, were the owners of a residential property that was subject to a restrictive covenant requiring the buildings on the property to be set back 20 feet from the front property line. The Appellants entered into a contract for purchase and sale with the Respondent, Charles Vozniak. The contract included a covenant that title would be free and clear of all encumbrances except non-financial obligations already on title such as easements, utility rights-of-way, covenants and conditions that are normally found registered against property of this nature and which do not affect the saleability of the property. During the course of the transaction, a Real Property Report revealed that the garage on the property was only about 10 feet from the property line. The parties’ solicitors disagreed as to whether or not this breach of the covenant affected the saleability of the property, and agreed to extend the closing date until September 24, 2008, to allow more time to resolve the uncertainty. The Appellants’ solicitors noted that the covenant did not apply to the property because on the face of it, it referred to different lots in the subdivision and not to the lands described in the purchase and sale contract. Therefore, they concluded that it was improperly registered against title. They wrote to the Respondent’s solicitors, insisting that he close the transaction. The Respondent refused. The Appellants took the position that the Respondent was in breach of contract, and that they would be seeking damages. On September 25, 2008, the Appellants were successful in obtaining a master’s order removing the restrictive covenant from title. They offered to extend the closing date for two more weeks to allow the Respondent to close, but he again refused. At trial, the judge found that the restrictive covenant was of the type normally found registered against such property. The Appellants argued that saleability must be measured by the registration of the covenant, not by its breach or non-breach. The trial judge agreed with the Respondent that any breach affecting the saleability of the property was not a permitted encumbrance, and concluded that because of this the Appellants were not ready, willing, and able to convey title in accordance with the contract on the extended closing date of September 24.

APPELLATE DECISION: The appeal was allowed. The Court of Appeal considered the Appellants’ solicitors’ position that the covenant had been “wrongly registered”, and concluded that they were not entitled to make that assertion. Under the land titles system the Registrar conclusively determines the status of title and of all encumbrances except in the case of fraud, which was not alleged in this case. The rights of the parties under the contract had to be determined on the understanding that the restrictive covenant was properly registered against title. The Court determined that the master incorrectly ordered it to be removed from title, and took judicial notice of the fact that the nature of this particular restrictive covenant was such that it applied to all lots in a subdivision. With respect to standard of review, the Court considered the Supreme Court of Canada decision in Sattva Capital Corp. v Creston Moly Corp., and held that the standard of review on the interpretation of the real estate contract was correctness. It was a standard form contract developed by the Alberta Real Estate Association and its interpretation was of general importance. The Court noted that under the contract non-financial encumbrances not affecting the saleability of the properly were permitted, and found it key that there were no collateral agreements or representations under the contract. It was also significant that there was no covenant in the contract to the effect that any permitted encumbrances be in good standing, nor any covenant that the buildings did not encroach on any setback in the permitted restrictive covenants. There was little relevant case law available to assist the Court, but Friio v Simmons was found to be directly on point and persuasive. In that case, the trial judge found that the non-financial encumbrances clause applied only to the registration of the encumbrance, not whether it was in good standing. The Court found that this was sufficient to dispose of the appeal, but went on to consider whether the apparent breach of the restrictive covenant affected the property’s saleability. It noted that the garage had been in place for at least 12 years and likely much longer, and at no point had any other owner in the neighbourhood come forward to enforce the covenant. Furthermore, the ultimate 10 year limitation period in the Limitations Act would apply to anyone seeking now to enforce the covenant. The prospect of anyone coming forward to enforce the setback clause seemed to the Court to be remote, and the success of any such attempt speculative.