"Purchasing Property Examine The Limits of Permitted Encumbrances" Typical language in an agreement of purchase and sale provides that the purchaser agrees to accept title “subject to any easements for sewers, drainage, public utilities, phone or cable lines or other services that do not materially affect the present use of the property.” Language such as this is usually found in either a preprinted form that may be used by the parties or in specifically negotiated “Permitted Encumbrances” in larger transactions. In Ontario, the test for whether an easement materially affects the use of a property was set out by Justice Moldaver in Stefanovska v. Kok, a 1990 case of the High Court: …the test to be applied is whether the vendor can convey substantially what the purchaser contracted to get. In this regard, all of the surrounding circumstances must be considered to determine if the alleged impediment to title would, in any significant way, affect the purchaser’s use or enjoyment of the property. More recently, Justice Forestell, in Ridgely v. Nielson, outlined four factors to be considered in determining whether an easement is material: the location of it; the size of the easement; the point of access; and the owner’s enjoyment of the property. The point at which an easement “materially affects” a purchaser’s use of a property was considered last year by the Ontario Superior Court of Justice in Macdonald v. Robson. In this case, the parties entered into an agreement of purchase and sale for a two acre property. The purchaser gave evidence at trial that the property suited his interests as its layout would enable him to build a structure on the west side of the property to house his tractor. The real estate listing for the property made no reference to any easements. In fact, an easement in favour of the local town affected approximately 25% of the property. The terms of the Easement Agreement permitted access to the property by the Town to deal with sewer systems and required the property owner to keep the easement area free of all obstructions, including buildings and structures. The restrictions imposed by the easement would have prevented the purchaser’s planned construction of a shed and future building projects. On discovery of the easement, the purchaser’s lawyer requisitioned its removal on the basis that it materially affected the purchaser’s intended use for the property. The vendor’s lawyer countered that given the size of the property there were alternate areas where a shed could be constructed. An application to court was launched. At trial, Justice Wilson of the Ontario Superior Court of Justice considered the tests in Stefanovska and Ridgely (noted above). Given the purchaser’s intention to use the property to indulge his building hobby, and given the size and location of the easement, it had a material effect on the present use of the property. Justice Wilson ordered the return of the deposit and held that the purchaser was entitled to rescind the agreement of purchase and sale. On appeal, Justice Carnwath of the Ontario Superior Court of Justice (Divisional Court) upheld Justice Wilson’s decision. This case is important as it provides insight into when an easement crosses the line between a permitted encumbrance and something that has a material effect on the benefit received by the purchaser. Whether an easement is “material” will be determined on an objective basis, taking into consideration the view of the purchaser. This case also highlights the importance of a thorough title investigation early in the purchase transaction.
Posted on: Tue, 06 Aug 2013 03:00:40 +0000
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