Fluctuations in the value of real estate can affect the outcome of a real estate transaction. If the market value of the property increases (between the date that the Agreement of Purchase and Sale is signed and the closing date), the vendor may regret the transaction and refuse to close. How does the innocent party protect its rights while it pursues a claim for specific performance or damages? The options include the registration of a Caution and/or the registration of a Certificate of Pending Litigation.
A Caution is an instrument that can be registered on title to the subject property. It provides legal notice that the cautioner has an interest in land.
Under section 71 of the Land Titles Act (LTA), a party may register a Caution in various situations. This includes circumstances when that party has obtained an interest in land by virtue of an Agreement of Purchase and Sale (APS), an option to purchase, or when a creditor believes that the property was conveyed with the intention to defeat creditors. The Caution could prevent or delay a sale of the property to another purchaser who would likely be unwilling to proceed with the purchase after seeing the Caution on title. The Caution can therefore provide the cautioner with an opportunity to negotiate a resolution with the vendor. However, a Caution under section 71 of the LTA does not actually prohibit transfers of the land and, when the Caution relates to an interest acquired under an APS, the cautioner must make payment of Land Transfer Tax in order to register the Caution.
Cautions are also available under section 128 of the LTA. These Cautions can be registered where the cautioner has a proprietary interest in the property, such as the right to receive a transfer of the property and/or a mortgage. Registering a Caution under section 128 may provide a more powerful result than under section 71 as it prevents any dealing with the property without the cautioner’s consent. (There are a few exceptions including the registration of a Court Order, statutory lien, construction lien or tax arrears certificate, all of which may be registered subsequent to a Caution).
In either case, the Caution is not a permanent registration. A Caution registered under section 71 of the LTA on the basis of an APS must authorize the Land Registrar to delete the caution 60 days after the date of closing in the APS. Cautions registered under section 128 of the LTA can be even more time-limited as they automatically cease to have effect 60 days after their registration.
If the cautioner desires longer-term protection, it may be able to register a new Caution after the original caution expires or obtain a Court Order permitting the registration of a Certificate of Pending Litigation on title.
Certificate of Pending Litigation
Section 103 of the Courts of Justice Act provides the statutory basis for a Certificate of Pending Litigation (CPL). It confers broad discretion on the Court to direct the registration or discharge of a CPL against title to the subject property.
In contrast to a Caution which expires after the prescribed time limit, a CPL is registered for an indefinite period of time (until the litigation is concluded and/or the Court orders the CPL to be discharged).
However, and also in contrast to a Caution, a CPL can only be obtained by Court Order. A motion for a Court Order granting leave to issue a CPL may be made without notice to the other party. However, in order to obtain a CPL without notice, the moving party must generally demonstrate that an interest in that property is in question in the litigation and that the moving party has a “reasonable claim” to that interest in land.
Breach of an APS
The market value of a property increases and the vendor refuses to close. The purchaser commences a lawsuit seeking damages or specific performance of the APS. To help ensure that the vendor does not dispose of the property before the litigation is concluded, the purchaser registers a Caution against the property under section 71 of the LTA. While another purchaser could still purchase the property, it is less likely that they do so with the Caution on title. The Caution remains on title until 60 days after the closing date in the APS. Before the Caution expires, the purchaser obtains a Court Order for a CPL by demonstrating to the Court that he/she has a reasonable claim to the interest in land – as evidenced by the executed APS. The purchaser then registers the CPL on title to the property, which ensures that the vendor cannot dispose of the property before the lawsuit (regarding the vendor’s failure to close the transaction) is concluded or the Court otherwise orders the CPL to be discharged.
While not necessarily related to the breach of an APS, the Court may also grant a CPL where it appears that a property was fraudulently conveyed by a party seeking to defeat its creditors.
For example, a plaintiff and defendant are engaged in litigation. The defendant transfers ownership of his home into the name of a family member for little (or no) consideration. It therefore appears that the transfer was made for the purpose of hiding the defendant’s assets/preventing the plaintiff from enforcing a Judgment obtained in the litigation.
The plaintiff registers a Caution on the basis that the property was conveyed with the intention to defeat creditors.
This provides the plaintiff with some time to commence a new legal proceeding where it seeks to have the property transferred from the family member back to the defendant. If successful, this would allow the plaintiff to effectively enforce a Judgment against the defendant (for example, by seizing and selling the property that is once again registered in the defendant’s name). Within that new legal proceeding, the plaintiff can bring a motion and obtain a Court Order permitting it to register a CPL against the property.
The CPL then prevents the defendant (and/or his family member) from putting the property further out of the plaintiff’s reach/defeating enforcement efforts until the Court had determined whether the defendant had indeed made a fraudulent conveyance.
The information contained in this article is for general information only and is not intended as legal advice or opinion. Should you require any advice or assistance with this or any other issue affecting your business, then please do not hesitate to contact us.