Land Registry Errors and the Land Titles Assurance Fund

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

Mistakes sometimes happen, even in the land registry system.  The Land Titles Assurance Fund operates under the Land Titles Act and is designed to provide compensation to individuals for financial losses arising from real estate fraud or from errors and omissions of the land registration system.  To be eligible for compensation, a claimant must ensure the time required to file the claim has not expired – applications must be made within 6 years of suffering the loss – and the claim made must meet the criteria for coverage. Examples of eligible claims include fraud, errors or omissions by the land registration system, errors in recording land that is brought under the Land Titles Act, and errors in recording a registered document in the automated land registration system.

A decision of the Ontario Superior Court of Justice dealt with a situation where the Land Registry Office (“LRO”) had mistakenly deleted a valid and active first mortgage from title to a residential property.  The LRO deleted 23 instruments from the property identification number (“PIN”) assigned to the property, including the first mortgage.  Importantly, the mortgage was deleted without a discharge being formally registered or any reference to the registration number of the discharged mortgage so that anyone looking at the PIN would not see any reference to it.  Several years later, the homeowner sold the property to a new purchaser.  The lawyers involved conducted title searches which indicated that the first mortgage had been deleted from title and there were no legal claims or restrictions against the property.  There was nothing to suggest that the purchasers had any prior knowledge that the first mortgage had been mistakenly deleted from the PIN.  As far as the purchasers knew, the mortgagee to whom the homeowner vendor had given the first mortgage had no ongoing interest in the property.

The property was sold to the purchaser free any clear of any interest on the part of the original mortgagee.  When the original mortgagee found out that its first mortgage had been deleted, it asked the LRO to correct the problem.  The LRO cooperated and reinstated the mortgage by way of a Reinstatement Order registered on title.  That mortgage went into default (not surprisingly, since the new owners would not likely have known about it) and the original mortgagee sought to recover the debt from the new owners of the property.  The new owners applied to the Director of Titles for Ontario to have the Reinstatement Order set aside and to remove the order and the mortgage from title to the property. The Director of Titles determined that a member of LRO staff had unintentionally deleted the first mortgage and concluded that the reinstated mortgage should be removed from title.

The matter came to the Court as an application by the first mortgagee to reverse the decision of the Director of Titles and to have the first mortgage once again restored to title to the property.  The parties put forward competing expert opinions about the conduct of the real estate lawyers involved in the new owners’ purchase of the property.  The Applicant mortgagee argued that the purchasers’ lawyers failed to meet the required standard of care because they should have been aware of red flags regarding the title and should have investigated further (which would have revealed the ongoing interest of the mortgagee in the property).  The expert for the Respondent purchasers/new owners contended that such a standard of care in this case was unreasonable and unrealistic as lawyers should be able to rely on the Land Registry for updated and accurate information – the principle of indefeasibility of title.  Three principles of indefeasibility of title embody the philosophy of the land titles system in Ontario: 1) the Land Register is the perfect mirror of the state of title; 2) the purchaser need not investigate past dealing with the land or search behind the Register; and, 3) the state guarantees the accuracy of the Register and compensates any person who suffers loss as a result of an inaccuracy.

The Application Judge rejected the argument that the purchasers’ lawyers failed to meet the standard of care required and identified the significant constraint on the ability of the Court to rectify (change) the Land Register.  Subject to two exceptions, fraud and actual notice of an unregistered interest, the Court cannot rectify the Register if it would interfere with the registered interest of a bona fide purchaser for value (such as the Respondent purchasers/new owners).  Fraud was not relevant in this case, so the Court considered whether the Respondent purchasers/new owners had actual notice of the Applicant’s unregistered mortgage. The Court found that whether a party received enough information to prompt inquiry and what actions the party took to investigate the matter are questions about constructive notice and are irrelevant to the actual notice analysis.  As the Court did not find that the Respondent purchasers/new owners had actual notice, the Court had no authority to order rectification to restore the priority position of the Applicant’s first mortgage.  The Applicant’s recourse was to seek compensation from the Land Titles Assurance Fund for the error made by the LRO.

Read the decision at:  2024 ONSC 3398 (CanLII).

Repair and Maintenance of Easements – Whose Responsibility?

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

The Ontario Superior Court of Justice ruled on a case where the duties surrounding easements and who has the obligation to maintain an easement were at issue.  An easement is a legal right to use another person’s land for a specified purpose and must have four characteristics to be effective. There must be a dominant and a servient tenement – the “dominant” land is benefitted by the “servient” land over which the easement applies; the easement must “accommodate” the dominant tenement in that it is reasonably necessary for the enjoyment of that land; the owners of the dominant and servient tenements must be different persons (you can’t have an easement over your own land); and a right over land cannot amount to an easement unless it is capable of forming the subject-matter of a grant (for instance, the right can’t be vague or uncertain). Case law has established that where an easement is created by express grant, the nature and extent of the easement should be determined based on the language of the instrument that created it, taking into account the circumstances at the time the easement is created.

In the recent court decision, the “dominant” owner was found to have no positive obligation to repair and maintain a drain located on the “servient” owner’s land. The servient land was located adjacent to the Highway 401 corridor.  In 1959, the owner of the servient land, part of a farm, had granted the Province an easement for the installation of a drainage system.  The drain was properly installed but, as the years went by, the drain deteriorated and caused the farm property to retain water.  The servient owner experienced crop loss and had to undertake significant repairs to the drain at a cost of roughly $60,000.  The servient owner sued the Province (and later the Municipality that took over the easement) to recover his losses.  After the Plaintiff passed away, his estate carried on the action and asked the Court to grant summary judgment (a decision made by the court without a full trial) against the Municipality.

After repairing the drainage system, the Plaintiff had contacted the Province and the Municipality to inform them of the problems in hopes of having the repair costs covered. The Municipality informed the Plaintiff that it only had the right to maintain the drain and not an obligation to do so.  Hearing this news caused the Plaintiff to write a letter to the Mayor of the Municipality setting out the background behind the drainage easement.  The Municipality did not respond to the letter or take responsibility for the repair costs, which led to the Plaintiff commencing his action.

The Plaintiff’s claims included requests for a declaration that the Municipality is liable for the continuing maintenance of the drain, reimbursement of the costs to repair and replace the drain,  and damages for the loss of crops. The Court considered several issues in deciding the claim, including the applicable test for summary judgment, the nature of the easement, whether the Municipality had a positive obligation to repair the drain, and whether the Municipality was liable to the Plaintiff for the cost of the drain repair and/or the crop loss and in what amount(s).

In considering what the nature of the easement was, the Court determined that both the original easement (originally granted to the Province) and the transferred easement (as transferred from the Province to the Municipality) are valid in law.  The Highway 401 corridor was considered to be the dominant tenement and the Plaintiff’s property was the servient tenement; the original easement and the transferred easement accommodated the drainage of the highway (reasonably necessary for the use of the highway); the owners of the dominant and servient tenements were different persons; and, the right to build and maintain a tile drain on a strip of the property was a right capable of forming the subject matter of a grant.  Having concluded that the easements are valid, the Court then addressed the Plaintiff’s claim that the Municipality had a positive duty to repair and maintain the drain and cover the costs incurred.  The Court ruled against the Plaintiff based on its interpretation of the easement.

The Court referenced the legal principles established by the Supreme Court of Canada in a 2014 decision that stated evidence should be examined by considering the mutual and objective intention of the parties.  When it comes to easements, the words of the grant must be interpreted in an ordinary and grammatical meaning that aligns with the circumstances of the parties involved at the time the easement was created.  The Court found in this case that the original easement was silent with regard to any obligation to repair.  While in some cases, the party enjoying the use of the easement will be liable for repairs, that was not the case in this scenario.

Absent express language in the grant of the easement, the “dominant owner” (the person benefitting from the easement) does not have an obligation pursuant to the grant of easement to keep the easement in proper condition. However, that doesn’t necessarily leave the “servient” owner (whose land is subject to the easement) without a remedy. Where the dominant owner acts negligently or commits a nuisance, they can still be held liable for repair costs and damages.  In this case, the Plaintiff’s estate was permitted to continue with a claim for damages based on the law of nuisance.

Read the decision at:  2024 ONSC 2811 (CanLII).