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.

Landowners seek to rely on 60-year old drainage maintenance agreement with municipality

Landowners and a municipality disagreed over the continuing effectiveness of an agreement made in 1953 that required the municipality's predecessor to maintain a drainage system and to make good any and all damage caused to the landowner (property owner).  The agreement had been made at a time when the local Township wished to construct a drainage system along a road.  In exchange for a right of access to the neighbouring property belonging to the predecessor-in-title to the current landowners, the Township gave the undertakings respecting maintenance and repair of damages.  The agreement was not registered on title, but the current landowners were aware of it.

When the current landowners asked the current municipality (the successor of the original Township) to meet its obligations under the agreement, the municipality responded that it was no longer bound by the agreement.  The parties then agreed to have the Court decide the question in a "Special Case" under Rule 22 of the Rules of Civil Procedure.

The result was the following series of declarations by the Court in favour of the landowners:

1. A DECLARATION that the Agreement on April 27, 1953, properly interpreted, did impose a perpetual obligation of the Township of Thurlow to maintain the drainage system it had installed in good working condition at all times and to make good any and all damage caused to the property owner whoever that may be from time to time as a result of lack of repair or of acts done at any time by the corporation in maintaining and repairing the system.

2. A DECLARATION that as a result of the amalgamation of the Township of Thurlow and the Defendant City in 1998, the Defendant City is bound by the contractual obligations of the former Township which are found to have been created by the Agreement.

3. A DECLARATION that the Agreement is valid and binding notwithstanding that it was not entered into or, the system was not constructed, under or in accordance with legislation such as the Drainage Act.

4. A DECLARATION that the Agreement can be enforced against the Defendant City although it was not registered on title under the Registry Act and/or the Land Titles Act.

5. A DECLARATION that the Plaintiffs are not barred from enforcing the Agreement by s. 449 of the Municipal Act, 2001.

6. A DECLARATION that the Defendant does not have a valid defence to the Plaintiffs’ claim on the basis that the conduct of the Defendant amounts to the exercise or non-exercise of a discretionary function resulting from a policy decision.

7. A DECLARATION that the Plaintiffs are successors of the Agreement and thus, are entitled to enforce the Agreement without an express assignment.

8. A DECLARATION that the Defendant does not have a valid defence to the Plaintiffs' claim on the basis that the Plaintiffs are trying to enforce a positive covenant in regard the land.

9. A DECLARATION that the Agreement, which imposes a perpetual obligation upon the City, is not invalid as contrary to public policy because it does impose a perpetual obligation.

10. A DECLARATION that there is sufficient description of the property and easements in the Agreement to create an enforceable agreement.

11. A DECLARATION that the Defendant does not have a valid defence to the Plaintiffs’claim on the basis that the Plaintiffs did not inquire about the Agreement and/or its status before they bought the land, and/or by reason of the defence that the Plaintiffs did not rely on the Agreement when they bought the land.

12. A DECLARATION that the Agreement is not void as against public policy as fettering the Defendant City’s discretion with respect to future uses of roads and road allowances.

13. A DECLARATION that there is no statutory limitation period that acts to bar an action by the Plaintiffs.

14. A DECLARATION that the Plaintiffs’ claim for damages for breach of the Agreement is not defeated by the doctrine of laches.

Read the decision at: Brown v. Belleville (City).