The Ontario Court of Appeal decided in Amberwood Investments Limited v. Durham Condominium Corporation No. 123, to the surprise of many lawyers practising in the real estate bar, not to enforce the cost sharing provisions of the Reciprocal Agreement.  The Court of Appeal was split in this decision, but the majority confirmed that positive covenants do not run with title to land, which has been the existing legal principle in Canada for over a century.

The Court commented;

“The rule at time causes inconvenience, its application in some cases may even result in unfairness and the present state of the law should be modified to meet the need of modern conveyancing. However, it is my view that the call for reform is not one for the courts to answer but for the legislature”

As an editorial comment, it is puzzling why the Court of Appeal was so reluctant to deal with this rather arcane principle of common law which dates back to a 1885 English decision, especially in view of the Court’s willingness to effect sweeping social reform in other areas and to strike down laws passed by Parliament if there is a Charter issue involved. Be that as it may, the law currently in Ontario is unchanged and the parts of an agreement or covenant which purport to impose positive obligations cannot be considered to be enforceable as against subsequent owners of the land who are not privy to the agreement or covenant.

To clarify the above statement, if a land owner has assumed the obligations in an agreement or covenant in writing, it can be held responsible for the positive covenants contained in the covenant or agreement. But if it does not do so, the Courts will not impose the positive obligations. The most common positive covenant would be the requirement to expend money or pay money.

As a “work around” to the problem of enforcement of positive covenants, the following are the most obvious solutions:

1. Have the subsequent owner assume the obligations pursuant to the registered agreement/covenant. This is usually done by having the original party to the agreement assign the benefit of the registered agreement to the subsequent owner and by having the subsequent owner covenant to assume the obligations under the agreement. This process is repeated when the subsequent owner then resells in the future. The weakness in this system is if the chain of privity is broken by, for example, a bankruptcy or a mortgagee selling or foreclosing.
2. Taking advantage of the Condominium Act, 1998 and having all of the shared facilities in a multi‑phased development form a Common Elements Condominium Corporation.

Given the uncertainty of whether an agreement or covenant being registered is enforceable or not enforceable, it is recommended, given the availability of common elements condominiums, to utilize this vehicle to ensure that multi‑phased developments or developments which require cost sharing common facilities, in order to have legally binding methods of enforcement.

For further information, please contact Shanae Soor by phone at (416) 238-7402 or by email at ssoor@businesslawyers.com.

© Morrison Brown Sosnovitch LLP, 2013. All rights reserved.