Buying real estate in Ontario is a big investment. If you choose to own a property with other people (which we will call your “co-owners”), it is important that you are aligned with what will happen to the property and how it will be managed.
Part of the reason why being aligned with your co-owners is so important is that if there are disagreements about the property, or if the co-owners’ relationship deteriorates, a co-owner of property in Ontario often has the right to force everyone to either sever the land or to sell the land outright. This article will outline these rights of a co-owner, and the limited circumstances in which such rights can be denied.
If you need help understanding your rights and responsibilities as a co-owner of real estate in Ontario, the real estate litigation lawyers at Walker Law can help.
A Co-Owner’s Prima Facie Right to Partition and Sale
Under section 2 of Ontario’s Partition Act, a co-owner of real estate has a “prima facie” right to force all co-owners to divide or sell the co-owned land. A prima facie right is a right that someone has, unless it can be proved that they shouldn’t be allowed to have that right.
This means that the remaining co-owners have a corresponding “prima facie” obligation to allow that division or sale.
Defence to Partition and Sale: Vexatious, Malicious, or Oppressive Behaviour
Ontario Courts have stated that a joint owner’s request for a sale of the land should only be refused if the request is vexatious, malicious, or oppressive. The threshold one would need to pass to act with vexation, malice, or oppression is very high. For there to be oppressive conduct, the party who is trying to deny the sale must prove:
- That the conduct of the party who wants the partition or sale undermines the reasonable expectations of the parties; and
- That the conduct of the party who wants the partition or sale is coercive, abusive or unfairly disregard the interests of the other co-owners.
The following have been determined by the Court to not constitute vexatious, malicious, or oppressive behaviour:
- Requesting a sale to disengage from a difficult relationship with a co-owner;
- Requesting a sale because the property was bought as an investment and the relationship between the co-owners deteriorated;
- Requesting a sale to avoid continued debt that is being incurred on all parties involved; and
- Requesting a sale because the person wants to be relieved from ongoing expenses.
In a 2002 Ontario Superior Court of Justice case, the party who applied to the Court for a sale (the “Applicant”) co-owned several properties with another co-owner (the “Respondent”). The Applicant only owned a small portion (less than 10%) of each property. The Respondent strongly opposed the sale, stating that the Applicant owned only a small portion of the properties and that the sale would force the Respondent to spend millions of dollars in disposition fees (for example, for mortgage pre-payment penalties, property taxes, and legal fees). Despite this, the Court ordered for all the properties to be sold. The Court noted that the fact that the Respondent would incur costs on the sale did not justify denying the Applicant’s prima facie right to the sale, and the Applicant had not acted vexatiously, maliciously, or oppressively.
In a more recent 2018 case from the Ontario Superior Court, a co-owner of a farmland (the “Applicant”) asked the Court to order that the co-owners sell the land because his relationship with his co-owner (the “Respondent”) had deteriorated. The Court ordered the sale of the farmland. In doing so, the Court noted that “partition or sale is the law’s answer when joint owners can no longer get along.” The Court stated that it was not malicious, vexatious, or oppressive to want to sell a property because the Applicant wanted to disengage from a difficult relationship with his co-owner. The Court also stated that it was not malicious, vexatious, or oppressive for the Applicant to refuse to accommodate his co-owner’s plans for the property.
Rare Circumstances Justifying Denial of Partition and Sale
Given the stringent test that a co-owner resisting a partition or sale needs to meet, there are very few commercial litigation cases where a Court will refuse a request for partition and sale.
One of the rare cases where a Court refused to allow a co-owner to exercise their prima facie right was in a 2010 case from an appeal Court in Ontario. In this case, the property at issue was a residential apartment building that was divided into 147 “interests,” with each “interest” corresponding to one apartment unit in the building. The apartment building was set up so that every owner of an “interest” was a co-owner of the whole building. Although each “interest” owner did not own their unit outright, the way a condo owner would, many interest owners considered their unit to be their home that they owned.
The Applicant in this case, a corporation, had bought many “interests” but wanted to own the entire building. They tried to get the owners of the other “interests” to sell their “interest to them, but some owners refused. The Applicant, being unable to buy the owners’ homes with their consent, then asked the Court to force the sale of the entire building – effectively forcing every “interest” owner to sell their interest, so the Applicant could buy the whole building.
The Court considered the reasonable expectations, along with the expectations that the families living inside that building had, and decided that the Applicant’s conduct met the high threshold for oppression. The other “interest” holders did not expect to lose their homes because another co-owner wanted to own the entire building. The Court also considered the hardship that the sale would have on the building’s inhabitants. The Court noted that this case was less like a commercial dispute and more like a family dispute, where one side was fighting to keep the family home.
The Importance of Documenting Agreements Contrary to the Partition Act
If parties do not want the Partition Act to apply to their co-ownership relationship, there is a way to do circumvent the Act. A 1983 Ontario Court decision has indicated that a written and signed contract can be used to override the Partition Act.
In order to override the Partition Act, however, parties must make sure that any agreement they have with respect to the property is contained in a written and signed agreement. A verbal or “handshake” agreement will not suffice, unless it can be proven that the parties acted in accordance with the handshake deal. A handshake deal about real property is vulnerable to section 4 of the Statute of Frauds, which states that any property right created for real estate must be made in writing to be enforceable. The Court has determined that it can be overridden if the behaviour of the parties demonstrate that they agreed to the handshake deal.
The real estate litigators at Walker Law recently argued and won a case which dealt with the Statute of Frauds. This case showcases the costly consequences of failing to document a real estate deal. In addition to the Defendants losing the case, they had to pay Walker Law’s client tens of thousands of dollars in legal costs.
This article illustrates the importance of understanding your rights and responsibilities under the Partition Act before you enter into a co-ownership relationship with anyone. If you or someone you know is in the middle of a dispute with a co-owner of a property, the real estate litigators at Walker Law can help.