Divisional Court comments on positive covenants

Property owners may covenant with one another in connection with their lands.  They may agree to negative covenants, which prevent certain things from being done on or with the land. For example, a negative covenant may prohibit certain uses that can be made of land or require that only certain types of building materials or colours can be used in buildings, etc.  Owners may also agree to positive covenants, which are promises to do something.  For example, a positive covenant may require one neighbour owner to pay something toward the costs of maintaining shared facilities or actually to carry out the maintenance activities, etc. 

The distinction between negative and positive covenants is important because, in Ontario and traditionally at Common Law, positive covenants do not generally run with the land.  That is, although a covenant may somehow be registered on title to a property (in a deed or easement, etc.), it does not necessarily follow the land when ownership changes.  Negative covenants will bind future owners, but positive covenants will not normally bind future owners.  Positive covenants are treated as agreements between the individual owners that attach to the owners, rather than to the land.

However, there are exceptions to the general rule.  In a 2016 appeal from a Small Claims Court decision, the Ontario Divisional Court reviewed the law on positive covenants and the exceptions to the general rule that positive covenants do not run with the land.  Statutory exceptions to the rule include: positive covenants granted by public authorities (Planning Act, R.S.O. 1990, c. P.13); positive covenants concerning condominiums (Condominium Act, 1998, S.O. 1998, c. 19); and positive covenants between the Crown and private landowners concerning the installation of survey monuments (Surveys Act, R.S.O. 1990, c. S.30, s. 61(1)).

There are also Common Law (non-statutory) exceptions to the general rule, including chain of covenants, the doctrine of benefit and burden, and conditional grants.  

The chain of covenants exception applies when successors-in-title (the future owners) agree to the same positive covenants.  That is, each time a property subject to the original positive covenant is transferred, the new owner(s) would agree to be bound by the covenant.  In reality, this is arguably the creation of a new covenant at the time of each transfer rather than a true exception to the rule.

In the 2016 appeal case, the Divisional Court described the other two Common Law exceptions as follows:

•  Conditional Grant Exemption. When being asked to enforce a positive obligation, the courts will first look at the transaction between the parties to see if a benefit was clearly made on the conditional acceptance of a positive obligation. If such an intention can be made out on the face of the transaction, the conditional grants exception is engaged
•  Benefit and Burden Exemption: If a conditional connection between the obligation and the benefit is not clear, the courts will then consider whether the benefit and burden exception applies. By looking at the circumstances of the transaction, the intentions and relationship of the parties, and the nature of the benefits and burdens at issue, the courts will determine if there is an implicit and necessary connection between formally separate obligations and advantages. Or, to repeat the words of Professor Ziff, this second exception looks to whether the courts should “tether previously separate promises”.

Both of those exceptions happen in circumstances where the Court determines that a future property owner should not escape the obligations of a previously-made positive covenant (on account of the positive covenant not running with the land) where that property owner is receiving a benefit connected with the covenant.  The Divisional Court summarized: "In a fulsome, pragmatic approach, as confirmed in Wilkinson, the courts must look to the substance of the relationship between the benefit and the burden to determine if the positive covenant continues to apply. As noted by Vice-Chancellor Megarry in Tito, when there is a sufficient degree of correlation between the obligation to pay and the grant of benefits, the burden and benefits exception applies."

Read the Divisional Court's decision at: Black v Owen.

BC Court of Appeal allows landowner appeal in breach of easement agreement case

I last wrote about this case in 2010: Utzig #2 decision.  As I explained in that post, the litigation concerns whether a pipeline owned and operated by the plaintiff Terasen Gas Inc. (“Terasen”) that runs through a portion of Burns Bog in Delta, B.C. was damaged or put at risk by landfill operations on lands owned by the defendant Utzig Holdings (B.C.) Ltd. (“Utzig”). The landfill operations were conducted, with Utzig’s permission, by the other defendants Alpha Manufacturing Inc., Burns Developments Ltd. and Burns Developments (1993) Ltd. (“Alpha” and “Burns”).

The BC Court of Appeal has now released a decision limiting the scope of the breach of covenants finding made by the lower court and dismissing in its entirely the claim in nuisance against the landowner. 

The covenants by the "owner" to the "utility" read as follows: "Not to do or knowingly permit to be done any act or thing which might, in the opinion of [the utility], interfere with or injure the works or any part thereof" (1961 ROW agreements) and "Not to do or knowingly permit to be done any act or thing which might, in the reasonable opinion of [the utility], in any way whatsoever interfere with or injure or endanger the works or any part thereof or impair the operating efficiency thereof or create or increase any hazard to persons." (1981 instrument)

For the landowner Utzig, the issue was whether it had, at all material times or some material times, permitted other parties to endanger the pipeline.  A key date was October 10, 1993, when Utzig entered into an Agreement for Sale of the property, which was never registered on title to the property.   The purchase price of $4 million was to be paid in instalments by October 18, 1995.  Terasen went to Court to seek injunctive relief prior to October, 1995, and the sale was never completed because the purchaser failed to pay the entire purchase privce when due.  For this reason, Utzig remained the registered owner of the property at all material times.

Madam Justice Newbury ruled (on behalf of 2 of the 3 judges on the panel) that the breach of the covenant not to permit only lasted up to the October 10, 1993 date:

In the result, I agree with the trial judge that up to October 10, 1993, Utzig retained sufficient authority over the subject property that it should be regarded as having “permitted” Alpha to do acts that might have interfered with or injured the pipeline. This constituted a breach of covenant. If in fact the works were so affected in this period, damages may be found to be payable in the second stage of this litigation. In respect of the post-AFS period, however, I would allow Utzig’s appeal on the ground that having sold the property under the AFS, it was no longer in a position to “permit”, or withhold permission for, Alpha’s activities. This result, in my view, accords with the reality that once land has been sold, it is for the new owner to be responsible for new breaches of the terms of instruments (such as rights of way or restrictive covenants) that are registered against the land. If it were otherwise, vendors would be obliged to obtain covenants from their purchasers repeating the covenants in such instruments, and one of the primary advantages of the Torrens registration system would be lost.

The last issue decided on the appeal related to Terasen's claim for nuisance - that Utzig was responsible for the landfill activities conducted on its land with its consent and that such activities substantially interfered with Terasen's use of its rights of way.  This claim related to the pre-October 10, 1993 period.  Utzig submitted that the threshold of “unreasonable interference” was not met in this case, given the lack of evidence of any “significant movement” of the pipeline until late 1994 and the fact the pipe was never “injured” physically.  The Court of Appeal ruled that, in the absence of clear evidence of substantial interference, the trial judge's finding of nuisance could not stand.

Read the decision at: Terasen Gas Inc. v. Utzig Holdings.

B.C. landowner liable for breach of Terasen Right-of-Way agreements

In a decision rendered January 25, 2010, the British Columbia Supreme Court found Utzig Holdings (B.C.) Ltd. liable for possible damage caused to a Terasen (formerly B.C. Gas) pipeline by a landfill operation. The damage alleged is stated to be "possible" because no trial has yet been held on the issue of damages. It may be found that none were sustained. What has been decided is that Utzig, as owner of the land in question, is responsible to Terasen both under right-of-way agreements and the tort of nuisance.

Utzig owned the land, but leased it to two different landfill operations (which were found liable in an earlier trial). Terasen alleged that the landfill operations, which were conducted outside the statutory right-of-way, caused one of two pipelines to shift (on one occasion up to 1/2 a metre) and put the pipeline operation at risk. The trial judge found that this was the case. The trial judge also found that Utzig, although it had signed an Agreement of Purchase and Sale to sell the properties to the landfill operations, remained the "owner" for the purpose of the right-of-way agreements. The sale of the property, if it had occurred at all, had not been registered on title.

Because of the unique ownership situation in this case, the trial decision includes long discussions of fairly complex liability issues. However, what will be more interesting to see will be the decision on damages when it is made. The trial decision notes that the shift in the pipeline's position caused Terasen (then B.C. Gas) to shut down portions of the pipeline due to safety concerns and then build a replacement pipeline in another area.

Read the decision at:
http://www.canlii.org/en/bc/bcsc/doc/2010/2010bcsc90/2010bcsc90.html