PDF version: When is a registered joint tenancy not a joint tenancy and not even co-ownership?
Cases Considered: Lutz v Lutz, 2012 ABQB 300; Lemoine v Smashnuk, 2008 ABQB 193
On a statutory application to terminate co-ownership under Part 3 of the Law of Property Act, RSA 2000, c L-7, can a court conclude that there was no co-ownership?
Lucas Lutz wanted to buy a house but did not qualify for a mortgage. Lucas’ brother, Eric, agreed to help. The deal was structured so that title to the house was transferred to Lucas Lutz and Eric Lutz as joint tenants. Two mortgages used in financing the purchase were granted by both Lucas and Eric; one was paid off but the other still secured an outstanding balance of approximately $90,000. Lucas made all of the subsequent mortgage payments. Lucas and Eric both lived in the house and paid utilities, but Eric moved out after 7 years, in 2006. Up until 2006, Eric also made payments to Lucas that Lucas characterized as rent and Eric characterized as contributions to the mortgage payments. There was no written agreement between Lucas and Eric.
Lucas made an application to the court for an order terminating the co-ownership and transferring Eric’s interest to him. Eric did not contest that application but wanted to be reimbursed for his contributions to the mortgage payments.
Madam Justice Marsha C. Erb concluded that there never was a joint tenancy between Lucas and Eric because the four unities which define joint tenancies were not present at the outset and, in particular, there was no unity of possession. She therefore granted an order (at para 25) that “Eric Lutz be removed from title when he is no longer at risk for the Royal Bank of Canada loan…” The principal reason given for this conclusion was that Eric is a “bare trustee.”
The Court’s order may well be a just and equitable result, but that, of course, is not enough. There must be judgment according to law. Otherwise all that we have is justice in the eye of the beholder.
The first problem with the Court’s order is that Lucas’ application was made under section 15 of the Law of Property Act, which provides as follows:
15(1) A co-owner may apply to the Court for an order terminating the co-ownership of the interest in land in which the co-owner is a co-owner.
(2) On hearing an application under subsection (1), the Court shall make an order directing
(a) a physical division of all or part of the land between the co-owners,
(b) the sale of all or part of the interest of land and the distribution of the proceeds of the sale between the co-owners, or
(c) the sale of all or part of the interest of one or more of the co-owners’ interests in land to one or more of the other co-owners who are willing to purchase
The snag is that Justice Erb’s order does not fit within the universe described in section 15. Section 15 does not permit a court to find that there was no co-ownership and order the conditional removal of one registered owner from the title. It does allow a court to terminate the co-ownership by making one of the three orders in section 15(2): a physical division, a division of the sale proceeds, or a between co-owners. In Ross v McRoberts, 1999 ABCA 227 an issue arose as to whether a court could choose a combination of the remedies listed in section 15(2). The Court of Appeal held (at para 16, emphasis added) that the Chambers Judge was correct to conclude he had no such jurisdiction; “the use of the words “shall” and “or” in s. 15(2) suggests the mandatory as well as disjunctive nature of the three possible directions.”
A second and related problem is that the issue is not so much whether there is a joint tenancy but whether the facts reveal any form of co-ownership at all, whether a joint tenancy or a tenancy in common. To create a joint tenancy, four unities must exist – unity of title, unity of time, unity of possession and unity of interest – but tenants in common have only a unity of possession (Bruce Ziff, Principles of Property Law, 5th ed, at 336-37). Unity of possession means that each co-owner’s rights must relate to the same piece of property; each is equally entitled to possession of the whole of the property. Absent unity of possession there is no co-ownership.
Justice Erb concluded that the brothers “did not have equal possession of the property [and] accordingly, no unity of possession existed” principally on the basis (at para 19) that “[t]here is no suggestion that Eric could have demanded or expected to occupy the property to any greater extent than his part of the lower level.” By deciding that there is no unity of possession, Justice Erb effectively concluded that there is no co-ownership, period. Again, that may well be a correct conclusion – at least in equity (it is difficult to reach that conclusion in law given the uncompromising language of sections 60 and 62 of the Land Titles Act, RSA 2000, c L-4 on the effect of registration). However, it is not clear that the Justice Erb really appreciated that the absence unity of possession must mean that there is no co-ownership -see her comments (at para 22) that “specifically” there can be no “right of survivorship” – which of course is simply a characteristic of a joint tenancy.
The third problem is that Justice Erb elides a step in concluding (at para 22) that Eric is a bare trustee. The step missing is the conclusion that Eric is a trustee. Again, the ultimate conclusion may well be correct but Justice Erb needs to say something about how Eric becomes a trustee using the familiar categories: express trust, implied trust, resulting trust, or constructive trust (Water’s Law of Trusts in Canada, 3d ed, at 19-22). There are different requirements that must be present and proven to constitute each type. There is not, however, a category called simply “bare trust.” The term “bare trustee” describes the duties of a trustee; it is not a form of trust (Water’s Law of Trusts in Canada, 3d ed, at 32).
In reaching her conclusions, Justice Erb relies heavily upon Lemoine v Smashnuk, 2008 ABQB 193, a decision of Madam Justice Andrea Moen. Unfortunately, the Lemoine decision suffers from two of the three problems we identified with the Lutz decision. A failure to follow the approach in Lemoine accounts for the third problem.
The facts in Lemoine were similar in that Lemoine added her friend Smashnuk to the title as a joint tenant when he agreed to co-sign the mortgage. He also contributed some labour and materials to renovations, for which he was paid in part. There was no written contract between the parties (and Justice Moen does allude to a potential Statute of Frauds problem). The issue, as in Lutz, was whether Smashnuk was entitled to any of the equity in the house. Lemoine applied, as in Lutz, under section 15 of the Law of Property Act for an order terminating the co-ownership without the payment of compensation to Smashnuk. The Order that Justice Moen made – under general property law and because “equity demands” – required that Smashnuk’s name be removed from the title at such time as he was completely removed as a “personal guarantor” for the loan (at para 46).
The main issue in Lemoine was whether Smashnuk really was a co-owner, despite the title saying that he was a joint tenant. Justice Moen determined (at para 31) that there was never any intention by either of the parties that Smashnuk be able to demand occupancy of the property, and therefore there was no unity of possession (i.e. no co-ownership). Neither was there any unity of interest, she concluded, because Smashnuk’s only interest in the property was his liability on the mortgage (at para 35). Justice Moen therefore concluded that Smashnuk was not a joint tenant, without noting that he was not a co-owner at all.
In considering what Smashnuk’s interest really was, Justice Moen examined the parties’ intent, suggesting the creation of an implied trust. However, as in Lutz, she merely finds Smashnuk to be a “bare trustee” (at para 42) without specifying what type of trust or how it arose.
Justice Moen considered the remedies under section 15 of the Law of Property Act only as an alternative to her property law-based decision. The only applicable remedy would be an order requiring Smashnuk to sell his interest to Lemoine for a price set by the Court under section 15(2)(c). The Court found that Smashnuk was not entitled to any compensation (at para 59), but was entitled to be protected from any liability by having his name removed from the mortgage. Thus, Justice Moen made the same order under the Law of Property Act as she did under general property law.
Although we do not disagree with the results reached in either Lutz or Lemoine, the reasons do not fully support the conclusions. In particular we think that these types of cases – which all involve informal arrangements which lawyers (and judges) must slot in to pre-existing conceptual categories (or create new ones, recall for example, Justice Denning’s judgment in Errington v Errington, [1952] 1 KB 290) – require a more careful analysis of the legal relationships between the parties in both law and equity.
The role of lawyers and judges is simply to treat like cases alike and apply the common law (as well as common sense as much as possible). Unfortunately, far too many people fail to put things in writing when things are going fine, then expect the courts to sort things out when the relationship goes sour.
The moral of the story is to have a clear understanding and put that understanding in writing beforehand whenever a significant sum of money or equity is involved.
An anonymous commentator has drawn our attention to another Queen’s Bench decision with a similar fact pattern: Christensen v Leigh, 2009 ABQB 247, http://www.albertacourts.ab.ca/jdb/2003-/qb/civil/2009/2009abqb0247.pdf. In this case Christensen (the applicant for partition and sale), put up $10,000 of the $15,000 down payment on the purchase price of a $151,000 property (the math is ours) with the balance being financed by a mortgage. The property was registered in both names as joint tenants. Leigh lived in the property and also rented out a room to a third party. At the time of the application the property was worth between $279,000 and $289,000. We pause at this point to say that the applicant’s contribution to the purchase price is surely a crucial difference between Christensen and both Lutz and Lamoine.
The application was heard on the basis on the record notwithstanding conflicting affidavit evidence. Justice Keith Yamauchi found that there was neither a joint tenancy between the parties nor a tenancy in common. There was no joint tenancy because there was neither unity of interest nor unity of possession.
Justice Yamauchi’s reasons (at para. 8) for finding no unity of interest suggest that he was applying the term ‘interest’ in a colloquial rather than a technical manner:
“There is also a lack of unity of interest. Had this Court found that the parties purchased the Property for investment purposes only, then it could be arguable that there was unity of interest, even though the Respondent lived in the house on the Property for a time. However, as time passed and the Respondent continued in possession and paid for the mortgage, utilities, taxes and other costs, his interest began to differ from that of the Applicant. This Court acknowledges that the Applicant made some contribution to the cost of the property and minor renovations at the outset. These contributions became non-existent soon after the parties purchased the Property.”
The term ‘interest’ as used in a PITT analysis (the mnemonic for the unities of possession, interest, title and time) refers to the size (the percentage undivided interest) not the ambition (common or otherwise) of the parties.
His reasons for finding no unity of possession were (at para. 7) that:
“In this case, this Court finds that the parties did not intend that the Applicant could possess the whole of the Property. The Applicant argued that she continued to possess a key to the house located on the Property, but she did not ever live on the Property and would not enter the Property without the Respondent’s consent or knowledge.”
This places too much emphasis on the reality of physical possession, as did Justice Erb in Lutz. We have to be careful here. The possession that is important is the right to possession and a co-owner may enjoy that right to possession in a number of different ways. The co-owners may, for example, agree that as between them L will be entitled to sole possession or that L will act as the bailiff or manager of the property. It does not follow from this that C has waived all of her rights associated with “the right to possession” including the traditional right to an accounting for more than the just share of rents received and perhaps liability for an occupation rent. Even if there no evidence that the tenant in possession is a bailiff (and the courts have been reluctant to reach that conclusion given the laissez faire nature of the co-ownership relationship in common law) it goes to the other extreme to conclude that C’s failure to physically occupy the premises is evidence of no co-ownership, especially where she has made a significant contribution to the purchase price.
But having reached this conclusion Justice Yamauchi did appreciate that he had also decided that there could be no co-ownership at all since the unity of possession is a necessary element of both forms of co-ownership known to the common law. Justice Yamauchi also understood that this conclusion required him to consider other explanations for the legal relationship between the parties. And while he did get a little hung up on “bare trustee” as a category of trust (at para. 11), he did go on to consider other characterizations including an express trust and a constructive trust before settling on a resulting trust analysis based upon the contribution to purchase price.
And having found a resulting trust he then applied co-ownership law by analogy to suggest a rough and ready procedure for doing the accounts between the parties seeking to preserve Christensen’s equity ‘investment’ (since there was no convincing evidence of a loan). Again, as arm chair academics, we are tempted to say that the result looks just, but some more reasons might be useful in convincing us that it is possible to borrow so readily from s.17 of the Law of Property Act even where there is no co-ownership.
In any event, here’s an alternative explanation. There was a legal joint tenancy here; but in equity it was a tenancy in common created by the unequal contributions to the purchase price. In equity the parties held undivided interests in the property (perhaps 2/3rd 1/3rd – or perhaps some other division) – and with that as the starting point it is time to order a sale of the property subject to the accounting called for by s.17 of the Law of Property Act (LPA). And by the way, when Justice Yamauchi states (at para 10) that the “LPA specifically excludes beneficial interests from its purview” did he mean the LPA or the Land Titles Act?