The agreement was executed by the three children, including the right of first refusal and a provision stating that notice of the agreement could be registered on title to the property. Later, the property was transferred from the one child to her and her husband as joint tenants, with the husband having agreed to be bound by the previous agreement (including the right of first refusal). The agreement was subsequently registered on title to the property, with the undertaking of the husband appended.
The whole situation ended up in Court because of disagreement between the siblings and their children over what could happen with the property on the death of the property-owner sibling (and her husband). Was the agreement binding on the heirs of the property-owner? Those heirs raised the issue of privity of contract, which was described by the Court of Appeal as follows:
The doctrine of privity of contract stands for the proposition that a contract cannot, as a general rule, confer rights or impose obligations arising under it on any person except the parties to it. This doctrine has two very distinct components or aspects. On the one hand, it precludes parties to a contract from imposing liabilities or obligations on third parties. On the other hand, it prevents third parties from obtaining rights or benefits under a contract. See London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, at para. 200.
There are established exceptions to the second aspect of the doctrine. In certain situations, the courts will permit strangers to enforce the contract and take the benefit of its provisions. The established exceptions are agency, trust, assignment or assumption, exceptions established by statute, and restrictive covenants. See Greenwood Shopping Plaza Ltd. v. Beattie et al.,1980 CanLII 202 (SCC), [1980] 2 S.C.R. 228, at para. 11.
The Court noted that, at first blush, it might seems as if privity of contract applies in this case and that the heirs of the property-owner sibling are not bound by the right of first refusal. However, death does not terminate a contract unless the contract is "based on personal considerations, skill or confidence (a personal contract)." The estate of the owner would be in the position of the owner, bound by the agreement.
What if the property is then conveyed by the estate to the heirs? The Court found that the heirs, too, would be bound by the right of first refusal. The estate would pass title to the property to the heirs subject to the requirements in the agreement. Not only do those heirs have actual notice of the agreement (in this case), but they "are volunteers in the sense that they give no consideration for title to the Property". The heirs cannot stand in a better position than did the estate.
The Court of Appeal also ruled that the Agreement containing the right of first refusal was properly registrable against title to the property under the Land Titles Act. The Court says the following with respect to the nature of the interest held by a holder of a right of first refusal:
What did the holder have before crystallization? The holder had an interest in the unregistered equity that arose at the point of crystallization. To be sure, the holder is not entitled to the equity, as that entitlement arises on crystallization. But the holder has an interest in it, in the sense that the holder has something more than a mere spes or hope. The holder, prior to crystallization, has the recognised legal interest that will swell into an equitable right on crystallization. In the language of s. 71(1), the holder is a person “… interested in [an] unregistered … [equity] in registered land…”. Accordingly, rights of first refusal over land can be protected by registration under s. 71(1).
Read the decision at: Benzie v. Hania.
Can the right of first refusal be sold with a property?
ReplyDeleteThis sounds like a trick question. Obviously, the answer in any specific situation would depend on the specific circumstances. However, it doesn't seem clear that a right of first refusal could be maintained in spite of the sale of a property. The right of first refusal is generally a right to match an offer to purchase the property that is acceptable to the vendor of the property; if the offer has been made, then the holder of the right of first refusal would normally have to excerise that right or lose it (i.e. the right of first refusal couldn't normally survive the sale of the property). I can't see the prospective purchaser agreeing to continue to be bound by the right of first refusal unless the holder of that right makes a new agreement with the new purchaser.
ReplyDeleteI suppose it might be possible for the original right of first refusal agreement to provide that it is an option that continues in spite of any sale of the property where the right is not exercised. If that was registered on title, it would be "sold with the property". That's a possibility that would require further review.
How would this case affect a Municipal Right of way.Our local council has signed a road user agreement with a wind developer to utilize the Municipal right of way for their infastructure.
ReplyDeleteOne of the clauses states that if the Local council ever closes a road allowance that they will convey an easemnet to the wind company into perpetuity for their infastruucture.
It is our understanding that the right of first refusal if a municpal road allowance is closed goes to the adjacent land owners.
Could the Municipality convey an easement to the wind company before the adjacent land owner has his right to purchase the property?
Would the landowner have to abide by the easement?
A municipality would have the right to grant an easement within the road allowance throughout the period it owns the road allowance. If the easement is in place before the road allowance is closed, then it would in all likelihood bind the purchaser of the road allowance. It would be possible at the time of granting the easement to limit it so that the easement terminates when the road allowance is closed or sold. However, in the example given above, the easement is granted "in perpetuity". One might question what consideration the municipality received in exchange for its promise to grant an easement in perpetuity.
ReplyDeleteIf a ROFR was included in the agreement of purchase and sale, but it was never registered on title and the property was subsequently sold to a bona fide purchaser for value without notice, without the ROFR being exercised- is the lawyer who failed to register potentially liable?
ReplyDeleteTo whom was the ROFR granted in the agreement of purchase and sale? I'm a bit confused by the scenario.
ReplyDeleteA ROFR is granted by the owner of the property. The owner is the vendor of the property. If the vendor has granted a ROFR to a third party and then goes ahead and sells the property without allowing the third party the opportunity to exercise the ROFR, the vendor may be liable. Would the vendor's lawyer have liability? For failing to register the ROFR on title? That would depend on the circumstances (e.g. what involvement did the lawyer have in the granting of the ROFR and in the agreement to sell the property to the bona fide purchaser for value). It's possible that there could be liability attaching to the lawyer as well.