Get on with your deal or lose the farm

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

A recent decision of the Ontario Superior Court of Justice tells a sad tale of sisters fighting over the family farm.  The 100-acre farm with a two-storey farmhouse and bank barn had been in their mother’s family since the 1920s.  By the time the father died in the late-2000s, the mother was living in a long-term care home, incapable of managing her property.  Her four daughters held power of attorney for property, but could not agree on how to manage the property including the farm.  For five long years, the sisters engaged in “bitter litigation”, launching court actions back and forth.

Things looked up by the end of 2015 when the sisters resolved their litigation through Minutes of Settlement.  They agreed to structure their mother’s property so that it would be divided equally among the sisters consistent with the wording of their mother’s will.  With respect to the farm, though, the will and a codicil to the will directed that the farm not be sold for one year after the mother’s death “to enable one or more of my children to find a way to keep it in the family, failing which the farm shall be sold and the proceeds shall form a part of the residue of my estate. It is my fervent wish that my children will assist one another in ensuring that, if at all possible, the farm will remain in the ownership of one or more of them.”

The sisters’ mother passed away in late-2020, triggering a countdown of sorts towards dealing with the farm property.  By the mother’s date of death, the farm was valued at approximately $1.9 million.  However, in 2014, the farm had been appraised at $890,000 and the sisters had already agreed in their Minutes of Settlement that two of the sisters would pay the other two sisters $422,750 for the farm (being one-half of the $890,000 less $44,500 real estate commission).  Each sister was entitled to one-quarter of the value of the farm property.  Title to the property was to be transferred to the purchasing sisters by a closing date to be the later of a date in February, 2016 and the date on which certain of the mother’s investment assets were to be disbursed.

The farm transaction was not completed in February, 2016.  By March, 2018, the transaction had still not been completed.  The selling sisters wrote to the purchasing sisters stating: “the agreement was not intended to extend over a period of time and needs to be fulfilled”.  They set a deadline of April 15, 2018 for completion of the deal failing which they would conclude that the purchasing sisters didn’t “intend to fulfill the Minutes of Settlement” and would “take the appropriate course of action.”

Fast-forward to 2022 and the purchasing sisters commenced a court application asking the Court to order that they could pay $422,750 to the selling sisters and that the selling sisters would have to transfer to the purchasing sisters title to the farm.  Again, as at the time of the mother’s passing in 2020, the farm had been valued at about $1.9 million – a $422,750 purchase price would represent a discount on the 2020 value of the farm of more than 50%.  It was the court application brought by the purchasing sisters that culminated in the recent Superior Court decision.

Madam Justice C. D. Braid heard the application and concluded the following: 1) the Minutes of Settlement were a contract between the sisters; 2) the purchasing sisters “repudiated” the contract by failing to complete the transaction with the selling sisters; and, 3) the selling sisters accepted the repudiation of the contract, bringing their agreement to accept $422,750 in exchange for the farm to an end.  As such, the purchasing sisters were no longer entitled to purchase the farm pursuant to the terms of the Minutes of Settlement.

While the purchasing sisters had never expressed an intention not to complete the transaction as required by the Minutes of Settlement, Justice Braid found that the purchasing sisters’ “extreme delay” meant they repudiated (or disavowed) their contract with the selling sisters.  Where a contract contains sufficiently clear terms about price, the property, and the parties, the Court will infer that the parties expect a transaction to be closed “within a reasonable period of time”.  Where a contract doesn’t stipulate a specific time of performance, the law implies a term that the contract is to be performed “within a reasonable time”.  Where delay in performance “becomes so long as to go to the root of the contract”, the contract will be considered repudiated or fundamentally breached and the party suffering the delay will be excused from performance.

Faced with repudiation of the Minutes of Settlement by the purchasing sisters, the selling sisters could have chosen to keep the contract alive and have sought to enforce the deal.  However, it was their option to accept the repudiation and end the contract.  With the Minutes of Settlement now unenforceable, Justice Braid ordered that the family farm be sold on the open market and the net proceeds from the sale be divided equally between the sisters in accordance with their mother’s will.  Her Honour did specify that the purchasing sisters were not prohibited from making an offer to purchase the farm once it was listed, but the purchasing sisters had lost the opportunity to buy the farm at the 2014 price.

Read the application decision at: 2024 ONSC 603 (CanLII).  

UPHELD ON APPEAL: 2024 ONCA 791 (CanLII).

Rights of First Refusal – give them the attention they deserve

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:  

In the real estate world, a Right of First Refusal (“ROFR”) creates an opportunity for the holder of the right to match an offer made to purchase a property – it’s a “sort of” option to purchase that will arise in the future under certain circumstances.  In the most common scenario, the owner of the property has an obligation to offer the property for sale to the holder of the ROFR when the owner receives a bona fide third-party offer to purchase and intends to accept the offer.  The holder of the ROFR can then choose to match the terms of the third-party offer and purchase the property.  If the holder of the ROFR doesn’t choose to match, the ROFR will in most cases be exhausted.

A ROFR is commonly created through agreement between the owner of a property and the person to whom the right is granted.  Often the ROFR will be given back to a vendor in a property transaction.  The vendor sells the property to the purchaser, but the purchaser agrees that the vendor will have a ROFR to re-purchase the property if the purchaser decides to sell.  This ROFR is not a true option to re-purchase that can be exercised by the vendor at its discretion.  Instead, the purchaser (the new owner of the property) must first decide to sell the property, which gives rise to the obligation to offer it for sale to the vendor (the previous owner of the property).

Sometimes the ROFR will be granted in a detailed and lengthy stand-alone agreement prepared by the parties’ lawyers.  Probably more often than not, though, the ROFR is an afterthought thrown into the schedule of additional terms attached to an Agreement of Purchase and Sale.  Does a statement as simple as “Vendor will have the first right of refusal to purchase the property from the Purchaser” create an enforceable ROFR?  Maybe. Maybe not.  A judge being asked to enforce the ROFR would need to “read into” the agreement one or more implied terms: that the Purchaser must present the Vendor with any offer the Purchaser is prepared to accept and that the Vendor would then have an opportunity to match the offer, the Vendor’s right to be exercised, as stated by the Court of Appeal for Ontario in one decision, “in a reasonable time given the circumstances that exist when the offer is made.”

The enforceability of the ROFR is of most importance to the party who is granted the right, so that party would be well-advised to take the time to craft an agreement that won’t depend on the Court’s willingness to infer the existence of unwritten terms.  At a minimum, the ROFR should spell out that when the property owner receives an offer to purchase the property that the owner is prepared to accept the owner must notify the ROFR holder of the offer and its terms.  And the ROFR should provide clear direction to the ROFR holder on how to exercise the right and within what period of time the right must be exercised.  The ROFR holder may also want impose conditions on the terms of third party offers that may be considered by the property owner so that the owner doesn’t use unreasonable terms such as excessively high deposit amounts or very short closing dates to render the ROFR impossible for the right holder to exercise.

This should probably go without saying, but an agreement for a ROFR should always be made in writing.  In Ontario, legislation called the Statute of Frauds, R.S.O. 1990, c. S-19 provides the following:

No action shall be brought to charge any executor or administrator upon any special promise to answer damages out of the executor’s or administrator’s own estate, or to charge any person upon any special promise to answer for the debt, default or miscarriage of any other person, or to charge any person upon any contract or sale of lands, tenements or hereditaments, or any interest in or concerning them, unless the agreement upon which the action is brought, or some memorandum or note thereof is in writing and signed by the party to be charged therewith or some person thereunto lawfully authorized by the party.

Generally speaking, contracts for the sale of land must be in writing to be enforceable.  One exception to that rule is the equitable doctrine of part performance.  If it can be shown that an oral contract was made and that part of the contract was performed by the parties, then the Court may find the contract is enforceable in spite of the Statute of Frauds.  As stated in the decision of the Court of Appeal in Erie Sand & Gravel Ltd. v. Seres’ Farms Ltd.:

The purpose of s. 4 of the Statute of Frauds is to prevent fraudulent dealings in land based on perjured evidence. However, Equity will not allow the Statute of Frauds to be used as an "engine of fraud". It created the doctrine of part performance to prevent the Statute of Frauds from being used as a variant of the unconscionable dealing which it was designed to remedy: see Hill v. Nova Scotia (Attorney General) [1997] 1 S.C.R. 69, at para. 10. The requirements in s. 4 of the Statute of Frauds must give way in the face of part performance because the acts of part performance fulfill the very purpose of the written document - that is, they diminish the opportunity for fraudulent dealings with land based on perjured evidence.

In the ROFR scenario, if the party seeking to enforce an oral ROFR has performed some act under the agreement in reliance on the existence of the ROFR (such as the provision of services), the Court may support the ROFR.  However, nothing should be taken for granted.  If you want a ROFR, do it right.

Enbridge Gas Distribution loses appeal over cost to relocate pipelines

In August, 2014, I posted about a decision from the Ontario Superior Court involving Enbridge Gas Distribution Inc. ("EGDI") and Metrolinx.  Metrolinx was awarded $2.3 million that it had previously paid to EGDI for the relocation of 6 pipelines.  The Court ruled that it was EGDI that was responsible for the cost.

The Court of Appeal has now dismissed EGDI's appeal of the lower court decision.  EGDI raised two issues: 1) CN, the predecessor in title to Metrolink, had a contractual right to require EGDI to pay to relocate pipelines only on CN-owned lands, not municipal road allowances; and, 2) even if Metrolinx had those rights, they were not conveyed by CN to Metrolinx.

The Court of Appeal did not agree with EGDI's interpretation of the agreement, finding that the obligation to pay to relocate pipelines included relocation for the purposes of alteration in the railway property, facilities or operations.  Those purposes were not restricted to railway-owned lands.  The Court also ruled that CN did transfer to Metrolinx the right to require EGDI to remove its pipelines at EGDI's expense.

Read the decision at: Metrolinx v. Enbridge Gas Distribution Inc.

Enbridge Gas Distribution ordered to pay back Metrolinx over $2.3 million in pipeline relocation costs

Enbridge Gas Distribution was recently ordered by the Superior Court of Justice to pay back to Metrolinx more than $2.3 million that Metrolinx had earlier paid Enbridge for pipeline relocation costs.  Metrolinx operates an urban rail transit service in the Greater Toronto Area and required the relocation and/or removal of certain parts of Enbridge's gas distribution system in the vicinity of the rail lines.  The question before the Court in this application was who should bear the costs of relocation and removal.  Metrolinx had paid the costs to Enbridge without prejudice to its right to go to Court to try to recoup them.

Metrolinx referred to crossing agreements that had been made between its predecessor, Canadian National Railway (CN), and Enbridge's predecessor, Consumers Gas, that provided that Enbridge would bear the cost of any relocation or removal.  For instance, a 1958 Agreement and a 1963 Agreement both provided:

Should it become necessary or expedient for the purposes of repair or improvement on the said railway that the said pipe crossing be temporarily removed or relocated the applicant [now Enbridge] shall upon request of the railway and at the sole cost and expense of the applicant forthwith remove or relocate the works.

Enbridge argued that the agreements were not assigned or transferred to Metrolinx and that the agreements related to federally-regulated activities.  Therefore, because Metrolinx was a provincial agency, it could not rely upon the agreements.

The Court disagreed.  It accepted the Metrolinx position that the rights that it claimed and the payment obligations of Enbridge were granted to CN by Consumers Gas as a matter of contract.  Justice Morgan explained:

... like all market transactions, they occurred within a particular regulatory environment, but that fact does not undermine the contractual nature of the rights and obligations in question.  Metrolinx' position accurately reflects the governing documentation and legal state of affairs between the parties.  It may well be the case that the Crossing Agreements were an outgrowth of federal regulations that prevailed at the time of their signing.  Nevertheless they are valid contracts, and remain so whether or not the relevant federal regulations continue to govern either of the parties. 

Read the decision at: Metrolinx v Enbridge Gas Distribution Inc.

Corn delivery case turns on witness credibility

The Plaintiff company in this case from New Brunswick claimed that it had delivered 8 loads of wet corn to the Defendant company at harvest and that the Defendant company failed to pay for the corn.  The Plaintiff valued the claim at over $33,000.  The Defendant company denied that there was a contract calling for payment to the Plaintiff company at all.  Instead, the Defendant said that it had agreed to purchase the corn from an entirely different third party; the price to be paid for the corn was to be credited to the outstanding account the third party had with the Defendant company.

The judge at trial commented: "There are two starkly different versions of the facts of this case.  Ultimately, the disposition of this case will turn on findings of credibility."  The judge determined that neither the representative of the Plaintiff company nor the third party (an uncle and his nephew) were credible witnesses and found as follows:

Based on my findings of fact, it is clear that there never was a contract between the plaintiff and the defendant for the sale of corn. The arrangement was that the third party, KT, would deliver bulk wet corn to the plaintiff’s premises in Centreville to be picked up by the defendant, the value of which would be applied by the defendant to the third party’s outstanding account. There being no contract of purchase and sale between the plaintiff and the defendant, the plaintiff’s action is dismissed. Given that there is no liability on the defendant, the defendant’s third party claim is dismissed.

Read the decision at: Taylor’s Feed & Tires Ltd v Brennan Farms Ltd.

Strange case: Province sells land by accident and needs it back

A decision on costs from the B.C. Supreme Court reveals a strange situation in which the B.C. Finance Transportation Financing Authority sold land to a private landowner and then realized afterward that it needed the land.  The Authority sold a portion of a closed road to Robert and Sherry Long, who owned the property adjacent to the road.  There were hydro poles with hydro and telephone lines on the closed road lands.

Due to an oversight by the Authority, a right of way was not reserved on title to the closed road for the poles and the lines.  The Longs acquired clear title to the land.  Once it had discovered the mistake, the Authority asked the Court to rescind the sale agreement so that it could preserve a right of way for the poles and lines.  When the intention of the Authority became clear, the Longs decided that they were no longer interested in keeping the property and wished to be compensated for their costs.  The Court made the recission order and awarded costs to the Longs.

Read the decision at: BC Finance Transportation Financing Authority v. Long.

Alberta Court rules in favour of landowner over crossing agreement

In 1948, CPR and Calgary Power Ltd. reached an agreement providing Calgary Power with the right to place three towers carrying power transmission wires on and over CPR property abutting the north side of 10th Avenue S.E. in the City of Calgary.  The agreement also provided that either party could terminate the agreement by giving three months' notice, and on termination Calgary Power would be obligated to remove the towers and wires and make good any damage caused to the property.  If the removal did not happen within one month of termination, CPR could undertake the work itself at the expense of Calgary Power or take ownership of the towers and wires.  Under the agreement, Calgary Power was to pay to CPR an annual rental of $40.00.

Flash forward to more recent times.  The power transmission facilities on the property have been expanded.  The original agreement and subsequent amending agreements have been assigned by Calgary Power to a company called Enmax.  CPR has sold its lands to a development company called Remington.  Remington wanted to develop the former CPR lands and advised Enmax of the plans.  Enmax told Remington that a 20 metre utility right-of-way would be required and that Remington would need to bear the cost of any changes, including the conversion of the overhead power lines to underground lines. 

Remington's response to Enmax was to provide a notice of termination under the existing agreements.  Enmax was directed to vacate the Remington lands (the former CPR lands) on or before June 30, 2005.   Despite that direction, Enmax has refused to remove the transmission towers and lines from the lands.  Remington says that its development will be severely compromised with the continued presence of high voltage transmission lines.  It believes such a continued presence will acutely influence potential purchasers or tenants in its intended mixed use residential/commercial development.

Remington applied to the Court of Queen's Bench for orders requiring Enmax to vacate the lands.  Enmax argued in response that the agreements between CPR and Calgary Power were personal contracts between a railway company and a utility company and could not be assigned to Remington without the consent of Enmax.  There were also questions raised about whether the agreements actually created true rights-of-way or whether the rights granted were simply a personal licence which could not be assigned or transferred.

The Court found that the agreements did create utility rights-of-way, which through legislation were not subject to all of the Common Law rules surrounding valid easements and rights-of-way.  Further, the Court ruled that if it was wrong about the nature of the agreements, and they did create mere licences, CPR still had the right to assign the agreements to Remington without the consent of Calgary Power or Enmax. 

For those reasons, the Court found that Remington was entitled under the agreements to terminate and require Enmax to remove its facilities.  Of course, that dealt only with the private relationship between the parties.  The transmission facilities are also subject to public regulation by the Alberta Utilities Commission (AUC).  The Court directed Enmax to make an application to the AUC to remove the transmission lines, and ruled that the lines could not be removed or relocated in the absence of an order from the AUC.

This decision is reminiscent of an earlier Alberta Court decision involving a landowner named Randolph Hill.  He purchased land from a railway company and was assigned an agreement that gave him the right to require a pipeline company to remove its pipeline.  The Court agreed that he had that right, but then the company simply went to the National Energy Board and obtained a Right of Entry Order.  The ROE Order now permits the pipeline to remain in place and, further, allows the company to abandon the line in place. 

Hill will no doubt be seeking compensation for this expropriation of his rights under the agreement.  It will be interesting to see how much those rights are worth.  What would someone pay for an agreement that would allow them to free their lands from the encumbrance of a pipeline corridor?  That has to be worth a lot on the open market.  Remington may very well find itself in a similar position.  The AUC may decline to order the removal of the transmission lines, in which case Remington's rights under the CPR agreements will have effectively been expropriated.

Read the decision at: Remington Development Corporation v. Enmax Power Corporation.