The Latest on Certificates of Pending Litigation: How Unique Does the Property Have to Be?

The recent Ontario Superior Court of Justice’s decision in THMR Development Inc. v. 1440254 Ontario Ltd. may exemplify a judicial trend in favour of a more liberal view of the extent to which a property must be “unique” before a certificate of pending litigation may be granted.

Where a real estate transaction has been terminated by a vendor and the purchaser still insists on closing, one remedy available to the purchaser as part of a lawsuit for specific performance of the contract is the issuance and registration of a certificate of pending litigation on title.  This device should ensure that the vendor cannot sell the property out from under the purchaser while the purchaser’s claim is proceeding before the Court.

In this case, the plaintiff/purchaser agreed to purchase from the defendant a commercial property in Port Perry.  The property was located on the last street in Port Perry that is parallel to the waterfront.  The purchaser claimed that this location was highly desirable for its business and that it had been looking for such property in Port Perry for several years.  It was close to other properties owned by the plaintiff and was the only suitable such property for sale in the plaintiff’s price range.

The agreement of purchase and sale was conditional on the plaintiff obtaining the approval of the existing mortgagee to assume the existing first mortgage.  The approval had to be obtained by the 40th business day following the day on which the agreement was “fully executed”.

The purchaser took steps to obtain the first mortgagee’s approval and ultimately obtained a letter from the first mortgagee consenting to the plaintiff’s assumption of the mortgage.  The vendor took the position that, among other things, the approval had been provided by the first mortgagee after the deadline date and accordingly, the transaction was terminated.

The parties disagreed about the deadline date.  The purchase agreement had been negotiated back and forth over some period of time and there did appear to be some ambiguity as to when the 40 day time period started to run.

In any event, the purchaser sued for specific performance and brought a motion for a certificate of pending litigation.

The Court pointed out that the test on such a motion, brought on notice to the vendor, is the same as the test on a motion by a vendor to discharge a certificate obtained without notice.  The question in either case is whether or not there is a triable issue as to an interest in the land, and not whether or not the purchaser is likely to succeed at trial.

The Court outlined the various tests involved in the process including, importantly, whether or not the land is unique.  The Court will also consider whether there is an alternative claim for damages, the degree of difficulty in calculating damages, and whether damages would be a satisfactory remedy.  Overall the Court will consider the harm to each party if the certificate is or is not issued as well as any other relevant matters between the parties in the exercise of the Court’s discretion in equity.

In this case, the Court had little difficulty concluding that there was indeed a triable issue as to a reasonable claim to an interest in the property.  The Court was also satisfied that the property was unique.  The Court approved previous authority to the effect that the purchaser need not demonstrate that the land is unique in the strict dictionary sense that it is entirely different from any other piece of property.  It is sufficient to demonstrate that the property has a quality that makes it especially suitable for the purchaser’s proposed use and that the property cannot be reasonably duplicated elsewhere.

In this case, given the property’s location and its particular suitability to the purchaser, the Court considered it unique.  The Court specifically rejected the argument that as a rule, commercial parties are not entitled to certificates of pending litigation.

There was a time that commercial purchasers understood that the availability of a certificate of pending litigation in a case of the purchase of commercial property was virtually nil.  Clearly, that is no longer the case.

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