Securing Interest in Land in Litigation – Hull on Estates Podcast #75
In this week’s episode of Hull on Estates, Sean Graham and Natalia Angelini discuss securing interest in land in litigation.
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Securing Interest in Land in Litigation – Hull on Estates Podcast #75
Posted on September 4th, 2007 by Hull & Hull LLP
Sean Graham: Hi, you’re listening to Hull on Estates, podcast #75, on Tuesday, September 4th, 2007.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills. Now, here are today’s hosts.
Natalia Angelini: Hi Sean, how are you today?
Sean Graham: Oh, pretty good. How are you Natalia?
Natalia Angelini: Very well.
Sean Graham: We thought we’d talk about ways of securing interests in land in litigation. And Natalia, you’ve done a lot of this so maybe you can set the table a little bit for how you might go about doing that.
Natalia Angelini: Sure. Often times in litigation, there’s an interest in land that’s in question that either beneficiaries are disputing over or the ownership is uncertain. And in those kinds of situations, in order to protect your client, and secure the property, one of the things that you can do is get a Certificate of Pending Litigation registered on title to the property.
Sean Graham: And when does this generally come up in your experience? Does it come up at the start of the litigation, or, you know, as an interim step partway through? What’s your experience?
Natalia Angelini: In my experience, it comes up most often at the very beginning of litigation, which is usually better because you can deal with it immediately and secure the property immediately and reduce the risk that it can be transferred or encumbered during the litigation.
Sean Graham: Now would you say that this is one of those sort of drop dead issues where the client comes in to a meeting and there are certain issues that sort of raise our red flags at the outset. Is this one of those?
Natalia Angelini: I think it can be. I think, in my experience, that’s how it’s come about.
Sean Graham: Yeah, I also would say that in those initial meetings, it’s very often the case that the clients are, they have been waiting to see you, they’re pretty ready to go, they want to take steps right away. And the Certificate of Pending Litigation is generally one of those where there’s land involved ‘cause you do not want the clients to leave and let it sit for 3 or 4 weeks and then before you know it, someone’s sold the property and the client is left holding the bag.
Natalia Angelini: Right and it’s something that once clients discuss the issue with us, and raise the issue of land, its certainly, a red flag certainly goes off in my mind and I immediately consider the steps that we could take to deal with that.
Sean Graham: Now…I’m sorry…now in terms of process, how would you get that issue off the ground?
Natalia Angelini: Well when you want to get a Certificate of Pending Litigation, firstly it has to be in your originating application. So you seek that relief in your application together with the other relief that your clients are seeking. And then you bring a separate motion. Typically I bring that separate motion almost immediately because I want to get the CPL issue nailed down and deal only with the CPL in that motion most often. And that motion is brought pursuant to Rule 42 of the Rules of Civil Procedure and Section 103 of the Courts of Justice Act. So those…that statute and that Rule provide part of the grounds for that motion or form them.
Sean Graham: Now I think it’s worth mentioning. You don’t actually need to claim ownership of the land in order to get a Certificate of Pending Litigation. It’s enough to claim an interest in the lands. So you don’t have to say you are the complete owner of that land. And in the estate context, one area that might come up is by saying “I am a beneficiary of this estate, this estate owns or ought to own or has some interest in the land, ergo as a residuary beneficiary, I do as well”. And so, in many cases, there’s more than one beneficiary and so you can’t really claim to be the complete beneficial owner of the piece of land which is going to fall into residue and then be divided. But it is enough to have an interest. And I think that’s a point worth considering.
Natalia Angelini: Right.
Sean Graham: Now, in terms of the Order itself, how long does the Certificate of Pending Litigation last?
Natalia Angelini: A Certificate of Pending Litigation lasts until the Order granting it is set aside, or varied.
Sean Graham: And so, I take it, no one is gonna buy a piece of land where the ownership is in issue by a Certificate of Pending Litigation. So in effect what you do is you freeze title to the land, potentially for years.
Natalia Angelini: Absolutely. Its, depending on the circumstances, it can be quite a draconian measure.
Sean Graham: And that brings me to the sort of downside. Because for every strong measure like this, there’s generally some risk to the client who wants it imposed. And maybe we could touch on that for a minute.
Natalia Angelini: The downside, the potential downside, Sean, is that your client can be liable for damages that may result from the CPL being registered. For instance, where the property is restricted from being sold when there is, you know, a buyer available and an offer made and ultimately at the end of the litigation, it turns out that there’s a finding that the CPL should never have been registered. So even though, in this case, clients don’t have to give undertakings as to damages, like they do in injunction cases, that risk is still there. And, you know, you’ve got to advise your client and your client should be aware of that risk and I think you’ve got to assess, you know, the strength of their case and the extent of their interest in the property.
Sean Graham: So you have to be pretty sure, it seems to me. With the fact that there’s no explicit undertaking, I gather would probably not carry too much weight with the Court if a $2,000,000 deal was lost and the value of the land plummeted and then it was found out that the beneficiary ought not to have meddled in the title. All of a sudden you’re on the hook for the difference, plus the costs of the other side, plus your own costs. That could be quite a devastating result, so…
Natalia Angelini: Right…
Sean Graham: …not surprising, I guess, that with the heavy hammer comes a pretty significant risk as well. So, given those risks, I think that it’s worth mentioning that a Certificate of Pending Litigation is kind of at one end of the spectrum. It gives you a great deal of protection but there’s corresponding risk. And maybe there’s other, maybe not so strong remedies, but other remedies that you can come up with in dealing with land and could you mention some of those?
Natalia Angelini: Sure. There certainly are. And that can range from obtaining a Court Order. I think this would happen later on in the litigation, where you’ve presented your full case to the Court and you get an Order from the judge saying, or essentially disallowing the opposing side to sell the property, rather restricting them from doing that. Something that is commonly done is placing a Caution on the property. And it’s not too difficult to get a Caution registered. Your interest does have to be set out on the Caution. I know that in several cases, people try to slap Cautions on without a real legitimate claim to the land. And, you know, the Registrar will ultimately remove the Caution. But if you do have a legitimate interest and the Registrar is satisfied, that Caution will stay on and it has a lifespan of 60 days. However, in practice, what I understand is that unless someone attempts to do something with the land, that Caution can still stay on after those 60 days. It’s not automatically removed.
Sean Graham: Now I take it that the risk with the CPL, the Certificate of Pending Litigation, is that what you do to the land or what you ask the Court to do to the land could reduce the value or the value decreases over time and an opportunity to sell is lost. You would think that maybe the same things may happen with an Order and a Caution. So I just want to be clear, I don’t think we’re completely off the hook on this by getting an Order or a Caution as opposed to a Certificate of Pending Litigation.
Natalia Angelini: We’re not, but at least in respect of the Caution, I mean, it really is a much more temporary measure. And I think it can provide your client with interim security since the property cannot be sold without the consent of the Cautioner. So it can give you that interim security but it isn’t so definite that it can really sort of hinder or scuttle a sale. There is one more way to address this scenario and it’s certainly risk-free for your client and it is getting the other side to agree to sign an undertaking not to sell or encumber or in any way deal with the property. And I’ve done that before but I think it’s restricted to the scenario where you’ve got an opposing side that’s trustworthy and, you know, whose undertaking would satisfy your client.
Sean Graham: Yeah, and I find a lot of times that comes down to sometimes even the lawyer on the other side, but certainly the client. If you have a trust company, you’re pretty safe with that undertaking. Or if you have sort of a client on the other side that you know has substantial assets, those types of considerations certainly come into it. And then you can get pretty much the full benefit of a Certificate of Pending Litigation, at least from a practical point of view, without some of the downside risks. Because if the other side either undertakes or consents to an Order not to sell the land, I do think it’s much less likely, although not impossible, it’s much less likely that the Court is going to impose a costs Order on you at the end of the day.
Natalia Angelini: Right, and in going the consent Order route, sorry, or the undertaking route, it’s a lot less costly.
Sean Graham: For sure, and you don’t have to dispute it. I mean, I’ve had certainly injunction motions where the litigation fees quickly get into the tens of thousands of dollars and it’s not a guaranteed remedy. It’s quite a risky step and very often clients who are gangbusters to get going, when they hear about it, you know, may back off and they may have some sober second thoughts when they find out what some of the consequences of bringing that remedy and losing, or even the cost consequences, the expenses of bringing the remedy and winning. So often after you have that chat, some of the alternatives we talked about look better and better.
Natalia Angelini: Umm, I agree Sean, good point.
Sean Graham: Well, I think we’ve covered the very basics of this at least. And hopefully that’s helpful to people. Thanks very much, Natalia.
Natalia Angelini: Thank you.
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