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ALWAYS EXCEPTIONS TO THE RULE

When you buy land, your lawyer will search the title to the land. If there are encumbrances on the title they will be assumed by you, unless there has been an agreement to take them off. The purchase contract will say that the seller must remove financial encumbrances, but that non-financial encumbrances may remain. The lawyer will review the encumbrances and ensure that the seller removes the ones they are supposed to remove.

An issue arises if there is no registration on title but some third party is claiming an interest or encumbrance over the land. The rule with our Torrens land registry system is that, if it is not registered on title, the encumbrance is not valid as against an innocent purchaser.

Who would make rules without exceptions? Lawyers might be put out of business!

A lease can only be registered as a lease if it is for more than three years. (You can register a caveat re: lease if it is a lease of three years or less.) Because you are prohibited from registering a lease of three years or less, the Land Titles Act deems the title to be subject to a lease of three years or less even though it is not registered.

There is an additional proviso; the title is only deemed subject to the lease if the leased land is actually occupied pursuant to the lease. If the land is a city lot with a house it is easy to determine if it is occupied. (Easy for the buyer, because the lawyer is not likely going for a visit.) If it is a residential tenancy situation there are other laws besides the Land Titles Act that will govern the validity of the lease against the new owner. When the land is farmland, occupation becomes a more difficult determination. Does a renter occupy land if he put the crop in? Does a buyer have to decide whose crop it is or whose cows they are?

For the most part sellers are honest and will tell buyers about the terms of any lease. If they aren’t honest the buyer has recourse against the seller for any losses they incur because of the lease. A buyer could sue for lost profits or loss of use because they had to delay using the land the way they planned until the end of the lease. Most sellers do not want to put themselves in such a situation, but there are some and there are sellers who accidentally put themselves in that position.

Estate executors are an example of people who will accidentally put themselves in the position of misinforming a seller because they do not know the exact details of lease perhaps thinking it is a year to year lease when it is in fact a three year lease.

When buying land it is always a good idea to get a copy of the title to look at all the registrations on title to decide if any of them are going to be a concern to you, such as pipeline right of ways or easements. You should also consider if it appears there might be tenants and ask the seller. If there are tenants, ask to see the lease or talk to the tenant before making a final commitment to the purchase the land.

By Glen D. Cunningham
July 12, 2006