Thursday, January 27, 2011

Owner Loses Right to Depreciate Property


(Ontario Real Estate Source)

By Brian Madigan LL.B.

The Ontario Court of Appeal recently quoted with approval a decision of the House of Lords (Melluish). In this case, a company leased plant and machinery (including central heating equipment) to a housing authority for installation in its subsidized townhouses which were then leased to tenants.

The Court of Appeal considered this case when making its decision in the City of Mississauga v. GTAA.

The equipment leases between the company and the owner/landlord provided that the leased equipment would remain personal or moveable property that the company would continue to own it, notwithstanding that the equipment might have become affixed to any land or building. Apparently, the purpose of this specific statement was to ensure that the company could depreciate the equipment for tax purposes and could repossess the equipment, if required.

The House of Lords confirmed that the equipment had indeed become a fixture, and that the taxpayer company could not claim depreciation, because the equipment had become attached to the land and was therefore, in law, owned by the housing authority, notwithstanding any agreement between the parties to the contrary.

Lord Browne-Wilkinson held as follows:

• The equipment in these cases was attached to the land in such a manner that, to all outward appearance, it formed part of the land and was intended to do so.

• Such fixtures are, in law, owned by the owner of the land. It was suggested in argument that this result did not follow if it could be demonstrated that, as between the owner of the land and the person fixing the chattel to it, there was a common intention that the chattel should not belong to the owner of the land.

• It was said that clause 3.10 of the master lease disclosed such an intention in the present cases…

• ….. the intention of the parties as to the ownership of the chattels fixed to the land is only material so far as such intention can be presumed from the degree and object of annexation.

• The terms expressly or implicitly agreed between the fixer of the chattel and the owner of the land cannot affect the determination of the question whether, in law, the chattel has become a fixture and therefore in law belongs to the owner of the soil….

• The terms of such agreement will regulate the contractual rights to sever the chattel from the land as between the parties to the contract and, where an equitable right is conferred by the contract, as against certain third parties.

• But such agreement cannot prevent the chattel, once fixed, becoming in law part of the land and as such owned by the owner of the land so long as it remains fixed.

The Courts in Canada have followed these same common law principles. If a chattel becomes a fixture by reason of its affixation or annexation to the lands, then it is to be treated by all third parties as a fixture. The third parties have no notice of the private deal between the landlord and tenant, and they don't have to follow it.

As far as taxation, by-laws, bankruptcy and priorities, the law of real property will prevail. The lease is interesting but not relevant.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Wednesday, January 26, 2011

Legal Issues Related to Improvements


(Ontario Real Estate Source)

By Brian Madigan LL.B.

There are indeed some very significant issues related to the determination of whether a chattel has become so affixed to the realty that it is no longer a chattel but is an actual improvement to the land and has become a fixture.


Consider the following:

· These basic common law principles determine competing claims to ownership of the improvement

· whether building permits would need to be applied for and development charges paid in respect of Pearson airport

· for tax purposes, depreciation could be taken on equipment (Note, in Canada, the regulations under the Income Tax Act permit a tenant to claim capital cost allowance for alterations or improvements to leased property (see sections 1102(4) and 1102(5) of the Income Tax Regulations and Interpretation Bulletins IT 324 and IT464R)

· landlord's right to distrain against a tenant or determine the priority of competing interests to the property under the Personal Property Security Act

· property financing, where the effectiveness of security given in the property may dependent upon the right of ownership

· A tenant's right to sue the landlord for leasehold improvements under principles of unjust enrichment may be affected

· A tenant's renewal rights in the improvements may be affected on termination of the lease. If the parties do not make renewal rights clear, the tenant could be left without rights in the new buildings which have become the property of the landlord

· Rights on expropriation may be affected, since on expropriation, an "owner" is generally entitled to be compensated for the market value of the land

· The entitlement to insurance proceeds may also be affected by who has title to the improvements where they are partially or completely destroyed

Obviously there are other issues as well, but the above matters are noteworthy and should be considered particularly in commercial leases.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Chattels and Fixtures: Real Property Principles


(Ontario Real Estate Source)

By Brian Madigan LL.B.

There are a number of fundamental principles in Ontario law concerning the issue of chattels, improvements made to real property by reason of the affixation or annexation of chattels and the consequence of such becoming fixtures. Here are some statements and comments made by the Courts:

· buildings constructed on leased land become part of the freehold property of the landlord, leased to the tenant

· fixtures are part of the freehold

· a building becomes part of the land and is the property of the landlord

· whatever is affixed or annexed to the freehold becomes part of it and is subject to the same rights of property as the lands itself

· whatever is fixed to the freehold of land becomes part of the freehold of inheritance

· The parties cannot by agreement change this result, which occurs automatically by operation of law

· A chattel becomes a fixture by implication of law and this conversion of it into realty does not depend upon agreement and is not accomplished by conveyance. A chattel is converted to realty at common law even if it is affixed without the consent of the owner

· Although an agreement or conveyance between the parties may determine their rights as between themselves, it does not override the common law in so far as the rights of third parties are concerned

· The parties can, however, make an agreement regarding their rights in the buildings effective only as between themselves, though such an agreement will not affect the rights of third parties

· Even if a contract cannot resolve the legal classification of a chattel or fixture, it can affect the rights of the contracting parties inter se. An agreement may operate between the parties to allow one of them to restore a fixture to its chattel status and remove it

· these provisions cannot on their own bind third parties such that the contractual labelling of an item as a chattel or a fixture will govern

· The parties may by a special contract make a law for themselves as to fixtures

· The effect of such an agreement "as between a landlord and tenant" is typically to allow the tenant to sever the buildings or equipment from the land and thus convert them back to chattels and remove them, if done so before the end of the lease. It may also affect the right to insurance proceeds

· Once a building has become affixed to the land and therefore the property of the landlord, the landlord may grant or convey the building or an interest in it to someone else, and the land may be owned separately from a building on the land

· buildings and other fixtures are in law "land", i.e. they are real property, not chattels

· There will also become the property of the owner of the land, unless otherwise granted or conveyed; they may be sold separately from the land

· There is nothing unusual in buildings being owned separately from the land under it, if an agreement has granted or conveyed fee simple in the building from the owner to another party

· a building can be owned separate and apart from the land under it

· If a grant or conveyance of title is intended, it is important to use appropriate conveyance language that makes clear that the fee simple in buildings is to be transferred, rather than simply using language which "deems" certain rights "as between" the parties.

So, be careful and know the rules!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Tuesday, January 25, 2011

Chattels and Fixtures ~ Building Exempt from Tax


(Ontario Real Estate Source)

By Brian Madigan LL.B.

The Greater Toronto Airports Authority constructed a building at the Toronto International Airport known as “Pearson” which happens to be physically located in Mississauga. The federal government owns the lands.

The City thought that the GTAA should pay municipal taxes and the GTAA said “no”.

Ultimately, the matter has resolved by the Ontario Court of Appeal. Building permits, development charges and taxes could not be levied.

Mr. Justice Laskin for the Court held that the Airport and its redevelopment are under exclusive federal jurisdiction.

Mississauga had stated that new buildings built at the Airport are the GTAA's separate property, and not property of the Crown, because of a provision in the Airport Ground Lease providing that, "as between" the GTAA and the Federal Crown, new buildings built by the GTAA would be "deemed" to be the separate property of the GTAA and not of the Crown during the lease.

The Ground Lease provision in issue provided as follows:

“The Landlord and the Tenant agree that

(a) any New Facility and any addition to, improvement to, alteration of or replacement of any Existing Facility which may be constructed upon the Lands from time to time are and shall be fixtures to the Lands and are intended to be and shall become the absolute property of the Landlord upon the expiry or early termination of this Lease without any payment being made therefore, free and clear of all mortgages, charges and encumbrances, but shall be deemed, as between the Landlord and the Tenant to be the separate property of the Tenant and not of the Landlord, during this Lease.”


The Court of Appeal concluded that, even during the currency of the lease, new buildings built by the GTAA at the Airport continue to be federal Crown property leased to the GTAA, and not the separate property of the GTAA.

The Court held as follows:

1) The deeming provision between the landlord (the federal Crown) and the tenant (the GTAA) affects certain rights of the parties between themselves.

2) This provision cannot affect the rights of third parties, nor, more importantly, can it affect the legal status of new buildings as federal property for constitutional purposes.

So, no matter what the actual lease says, the common law principles of real property will apply. Buildings become fixtures. The lease can provide that the tenant has certain rights to remove it, but that is an agreement just between those two parties. Nothing changes the law. When it comes to third party rights, what you see is what you get. The building is a fixture. It sits on federal Crown land. The local municipality can’t tax it or assess charges against it.

This case is important because it clearly reinforces the fact that an agreement between two parties, in this case the lease, has no bearing on the chattel-fixture determination.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Sunday, January 23, 2011

Chattels and Fixtures ~ Personal Property Security Act


(Ontario Real Estate Source)

By Brian Madigan LL.B.

There are of course liens, charges and encumbrances that can be registered against chattels. That happens all the time with motor vehicles. Cars are sold and they are subject to a chattel mortgage.

Now, the next question is the attachment of a big ticket item to the real estate. Sometimes, the big ticket item overwhelms the actual land and building. Consider the case of a $2 million MRI placed in a medical clinic. The waiting room and a few interior partitions for some offices and changing rooms and all the leasehold improvements can be had for $50,000.

So, what happens to the MRI? It ends up being built into the building. Installation will cost a few hundred thousand dollars. Does it just become part of the realty? Does the landlord own the MRI at the end of the lease term? This is much different than a few sheets of drywall partitioning and a tile floor.

There is an Act that deals with this. It is the Personal Property Security Act (PPSA). It essentially deals with the registration of liens or chattel mortgages on personal property.

Here are the rules when a large or significant chattel is affixed to the realty:

Fixtures

34. (1) A security interest in goods that attached,

(a) before the goods became a fixture, has priority as to the fixture over the claim of any person who has an interest in the real property; or

(b) after the goods became a fixture, has priority as to the fixture over the claim of any person who subsequently acquired an interest in the real property, but not over any person who had a registered interest in the real property at the time the security interest in the goods attached and who has not consented in writing to the security interest or disclaimed an interest in the fixture.

Exceptions

(2) A security interest mentioned in subsection (1) is subordinate to the interest of,

(a) a subsequent purchaser for value of an interest in the real property; or

(b) a creditor with a prior encumbrance of record on the real property to the extent that the creditor makes subsequent advances,

if the subsequent purchase or subsequent advance under a prior encumbrance of record is made or contracted for without knowledge of the security interest and before notice of it is registered in accordance with section 54.

Removal of collateral

(3) If a secured party has an interest in a fixture that has priority over the claim of a person having an interest in the real property, the secured party may, on default and subject to the provisions of this Act respecting default, remove the fixture from the real property if, unless otherwise agreed, the secured party reimburses any encumbrancer or owner of the real property who is not the debtor for the cost of repairing any physical injury but excluding diminution in the value of the real property caused by the absence of the fixture or by the necessity for replacement.

Security

(4) A person entitled to reimbursement under subsection (3) may refuse permission to remove the fixture until the secured party has given adequate security for the reimbursement.

Retention of collateral

(7) A person having an interest in real property that is subordinate to a security interest in a fixture may, before the fixture has been removed from the real property by the secured party in accordance with subsection (3), retain the fixture upon payment to the secured party of the amount owing in respect of the security interest having priority over the person's interest.


Application of the Rules

Those were the rules. Let's consider the following. ABC Financing Co. pays for the MRI and registers a lien under the PPSA as against XYZ Medical Clinic.

First National Mortgage Co. has a mortgage on the real property of Joe the Landlord.

Here is what happens:

1) The MRI arrives at the site as a chattel. ABC's lien has priority.
2) The MRI is installed and becomes a fixture.
3) First National's mortgage and Joe the Landlord have priority over the MRI.
4) However, ABC, still has priority if First National and Joe consent.
5) An arms-length purchaser for value without notice will have priority (real property law).
6) Further advances under the First National mortgage will have priority unless First National waived that right.
7) The two previous rules (5, and 6) do not apply if ABC Financing previously registered a lien under the PPSA.

Now, the next step is the removal of the MRI, if the clinic doesn't make the payments and the loan falls into default. The finance company can remove it, but has to reimburse Joe the Landlord (or First National) for any damage.

Since it cost several hundred thousand to install, its removal will be costly. It must be dismantled and the building restored.

Concerned about the potential damage, Joe the Landlord might require the sum of $50,000 to be posted to attend to the restoration costs prior to consent to the removal.

You will also notice that there is a right to keep it in place. So, assume that $1.5 million remains unpaid. The owner of the property the first mortgagee and any subsequent mortgagee who arrived afterwards all have the right to pay the $1.5 million outstanding and keep the MRI in place.

The rules under the Personal Property Security Act are designed to protect other parties who have a clear and measurable interest in chattels that become affixed to the real property.

So, while the law of fixtures under real property law is not altered, the question of priorities among parties is determined by statute. It is based upon fairness and normal commercial practice.

Obviously, a $2 million MRI doesn't arrive at a clinic without the knowledge of the landlord, nor without the registration under the PPSA. And, it would not be affixed to the realty without a waiver, consent, acknowledgment, contract, deferral or postponement agreement in place.

Lawyers for the parties will search title and the PPSA registrations as part of the transaction, so there should be "no surprises".

Again, this is a significant element of the law when it comes to chattels and fixtures and has absolutely nothing to do with an agreement of purchase and sale.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

From Chattels to Improvements to Fixtures


(Ontario Real Estate Source)

By Brian Madigan LL.B.

One way to tell if you have a chattel or a fixture is to determine whether or not it may be subject to a construction lien.

If it's a fixture, the answer is "yes; if it's a chattel, the answer is "no".

The same rules of real property apply. You require an "annexation" of the chattel to the land, then it's part of the realty.

However, to be perfectly frank, there is a "grey area", and that is that some items which are still properly chattels are lienable. That is because of the statutory definitions contained in the Construction Lien Act (Ontario).

Construction liens may be placed upon the lands in respect to an "improvement", which might include some chattels in some circumstances.

Here are the relevant provisions excerpted from the Act:

14. (1) Creation of Lien -- A person who supplies services or materials to an improvement for an owner, contractor or subcontractor, has a lien upon the interest of the owner in the premises improved from the price of those services or materials. . . .

1. (1) Definitions -- In this Act, . . .

"improvement" means,

(a) any alteration, addition or repair to, or

(b) any construction, erection or installation on,

any land, and includes the demolition or removal of any building, structure or works or part thereof, and "improved" has a corresponding meaning;

"land" includes any building, structure or works affixed to the land, or an appurtenance to any of them, but does not include the improvement; . . .


The definition is somewhat broader than just fixtures because of the purpose of the Construction Lien Act. The intention behind the Act is to protect contractors who add value to a property but never get paid. Obviously, the owner receives the improvement, but otherwise may not have to pay. The contractor paid for the improvement and was never compensated by the general contractor or the owner for his work.

So, the construction lien cases are important because in many circumstances they focus specifically upon the time of the conversion from personal property to realty. Certainly, if it's a fixture, then it's lienable. But, so too, for the "grey area" improvements. They may not quite meet the full fixture test, but they are still considered as an improvement to the property.

Consider for example a foundation for a building. The hole is dug. That is an improvement, but a hole is just a hole. It's not a chattel, and it's not a fixture, however it still is an improvement. Then come the footings. Plywood forming is set in place, and concrete is poured. The plywood is intended to be temporary. It is to be removed once the concrete sets. So, it's not a fixture. It remains as a chattel even though affixed to the realty. However, it is lienable because it's an improvement. It also falls into the "grey area" of improvements.

When we come the concrete, there are three categories:

1) concrete, poured and set in place (this concrete is a fixture)

2) concrete, in the wheelbarrow (this is still a chattel, but lienable as an improvement)

3) concrete still in the ready-mix truck (this is a chattel, but if it cannot be returned which is to be determined on the facts, may be an improvement).

The transition from chattel to fixture occurs at the moment the concrete is poured into the plywood forming even though technically for a few minutes it could probably be removed and used somewhere else.

Now, that the footings are in, we come to the concrete blocks or the poured cement foundation. The poured concrete would follow the same pattern as the footings. The cement block foundation is treated differently. Once set in place, the blocks are part of the realty. They retain their character as chattels until some form of affixation takes place.

You can very well appreciate that this is all too complicated as a factual situation on a construction site, so the improvement rule will prevail, and the concrete blocks still sitting in a pile will be lienable.

Again, looking at the issue of chattels and fixtures, it is quite clear that the determination has everything to do with real property law, and nothing particularly to do with an agreement of purchase and sale between a buyer and a seller.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Saturday, January 22, 2011

PropertyWire

(Ontario Real Estate Source)

By Brian Madigan LL.B.


This is my introductory blog for the bloggers's section of PropertyWire.

Many of you have read various of my articles which PropertyWire has published since inception.

I propose to write in three basic areas:

1) markets,

2) economics and finance, and

3) the law,

all, of course, related to real estate.

Each month, I will have a regular analysis of the performance of the Toronto real estate market. It is indexed to base 100 and compared to other economic variables, so it is easy to see how real estate performance compares with the CPI, price of gold and oil and the rate of returns achieved on the major North American stock markets.

The real estate market is the Greater Toronto Area (GTA) rather than Toronto proper. In addition there is a breakout for condominiums.

While I have already written over 2,000 articles in this field, there are fewer these days on "finance". That is due to the fact that other authors have taken up this challenge, including mortgage brokers and financial advisors. Consequently, a major proportion of posts will deal with the "law".

In the real estate law field, I will deal with:

1) professional standards and discipline,

2) The Real Estate and Business Brokers Act, 2002,

3) contract cases,

4) tort cases

5) real property law cases,

6) common law,

7) disclosure obligations, ethical duties and professionalism on the part of agents, and

8) new trends in law.

I apologize in advance to readers in provinces other than Ontario. I will only be dealing with Ontario law, so you will have to make the appropriate adjustments in your province. The law could be quite different. Generally, there are analogies but there are often important distinctions which could be vital in any particular case. So, always question yourself: does that apply here?

I welcome any questions or comments, including suggestions for new topics.

You have probably already noticed that I tend to write a series of articles on one topic. That keeps each post as short as possible, and at the same time provides a sufficiently detailed review so theat the information is worthwhile, provided that you find the series of interest.

After posting several articles on one particular topic you will find that I offer Continuing Education Credit courses on that same topic. I am an approved Education Provider by the Real Estate Council of Ontario and currently offer several courses.

The Chattel-Fixture series will find its way into a credit course. I already have the Law of Disclosure and Use of the Saller Property Information Statement. The Detailed Analysis of the Agreement of Purchase and Sale is offered now through several real estate boards and some others will soon follow. You can watch for Competition related issues, boundaries, surveys, legal non-conforming uses, mortgage fraud, the civil law of torts in the real estate field, as well as the criminal law in the real estate field.

If you choose to attend one of these sessions, please come up after the program and introduce yourself

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Tuesday, January 18, 2011

Is it Subject to the Mortgage? (Chattels and Fixtures)


(Ontario Real Estate Source)

By Brian Madigan LL.B.

If it’s subject to the mortgage, then it must be a fixture. That’s part of the test.

A Judge who needs to apply the law, to a given fact situation, will wonder what would the mortgagee think. If the mortgagee would expect this item to realistically be part of the realty, and therefore subject to the mortgage on the property, then it’s probably a fixture.

This isn’t a different or extra rule. This is simply a test question that a judicial party might pose. It is part of the “reasonable man” test.

When Judges need to consider the thoughts, views or opinions of the common man, or the reasonable man, they would postulate various questions, and of course, answer them from this perspective.

English common law, at least in the 20th century referred the reasonable man “on the Clapham Omnibus”. Clapham is an ordinary suburb in southeast London, and omnibus, just means bus. In Toronto today, one might similarly use the expression “the man on the Bloor Street subway”. But, in Ontario courts, the English expression is in common usage and lawyers and judges all know what it means.

There are security interests to be recognized. There could be a lien on a chattel. However, at common law, once the chattel is affixed to the land and becomes part of the realty, the lienholder loses the right of repossession and the land mortgagee is entitled to the increase in value of the land occasioned by the attachment. You can appreciate that this is rather unfair to the lienholder.

As between the mortgagor and mortgagee, the result may be fair, but when you look at two secured parties, the lienholder advanced the funds for the item, and it was the owner who then affixed it to the realty. The mortgagee of the land, then receives a windfall at the expense of the lienholder who advanced all the money.

There had been an attempt by some courts to offer some protection to lienholders. If there was a clear right of repossession and a restriction on attachment, this might give rise to an interest in realty. If there were such an interest, then it could be registered on the title to the lands and offer some priority to the lienholder.

However, let’s suppose the following registrations in sequence of time:

1) first mortgage,
2) lienholder’s interest
3) second mortgage.

The common law placed the lienholder ahead of subsequently registered mortgagees but behind prior registered mortgagees. Since the first mortgagee had priority, there was usually still nothing left for the lienholder, so this was not an entirely suitable remedy.

Today, the Personal Property Security Act provides an opportunity for registration of liens as against chattels and may prevent their subsequent attachment to the land. So, if the owner doesn’t really own the item that was affixed, then it doesn’t become a fixture in law. At least, that is a somewhat fairer approach.

The determination of the extent and priority of various secured interests whether they be mortgagees or lienholders is always difficult.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Monday, January 17, 2011

Yearly Market Movement in Toronto


(Ontario Real Estate Source)

By Brian Madigan LL.B.

The Toronto residential housing market has been very active.

The question for some investors is when does the market move? And, is it too late? Let’s review the ORES Housing Index. It started on 1 January 2005 at base 100.

An interesting question would be when did it reach its peak? So, what was the year end figure? And, how early in each year was that number reached?

2010

In 2010, the market started at 126.58 and rose to 134.29 by the end of the year. It had reached the year end figure by March.

2009

In 2009, the market started at 106.34 and ended the year at 127.48. It took until September-October to reach the year end figure.

2008

In 2008, the market commenced at 115.88 and completed the year at 111.84. The entire year was not in decline. The market reached 123.21 in May, and thereafter went into decline.

2007

In 2007, the market started at 109.46 and ended at 116.43. It reached the year end figure by March-April.

2006

In 2006, the market started at 102.95 and ended at 104.05. It had reached the year end number January-February.

2005

In 2005, the market started at 100, and rose to 101.26. It reached the year end figure by January-February.

Analysis

It may be difficult to draw any firm conclusions, but the market often peaks early, in the winter months, 2005, 2006, or the early Spring 2007, 2010. It could be the late Spring as it was in 2008, or even the Fall as it was in 2009.

Each year is subject to its own pressures. Late 2008 saw a world wide economic recession, and 2009 saw the signs of recovery later in the year.

In a normalized market, without a recession, the peak often is seen in the early months of the year. This is due to:

• Pent up demand
• Shortage of housing
• Lack of choice
• Appreciation that the market is moving upwards
• General inflation

Any given year can have its own individual factors which alter the trend. However, the clear and predictable trend appears to be a “yearly markup” in prices. That happens early in the year. In effect, an entire year’s growth can all be reflected in the price escalation over a couple of months.

The important matter to note, is that when prices start to decline somewhat, the market is not going into a tailspin. It’s normal. It simply means that more product has come on the market resulting in something of a slowdown. But, it’s also the time when the better properties are often available.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Toronto Sales Volumes ~ What Kind of a Year was 2010?


(Ontario Real Estate Source)

By Brian Madigan LL.B.

What kind of sales volumes took place in 2010? How does it compare?

If you are going to claim that 2009 was the greatest year for sales ever, we will have to have something to compare it to.

Let’s look at the sales volumes for single family homes in the GTA (Greater Toronto Area) over the last 7 years:

83,501……….2004
84,145……….2005
83,084……….2006
83,264……….2007
76,414……….2008
89,273……….2009
88,209……….2010

The average number of sales would be 83,984. There was a world wide recession in 2008 and an economic recovery in 2009.

You will notice that the numbers in those two years are skewed somewhat. 2008 is the lowest and 2009 is the highest. These two years average out to 82,844 transactions. They fall about 1,140 sales short of the seven year average.

So, what does that mean about 2009? It probably simply means that it took some sales from 2008.

The missing 1,140 sales might have been kicked over to 2010. Who knows! However, the important point to note is that 2009 is not a good year for comparative purposes and neither was 2008.

2008……….recession
2009……….recovery

So, the better approach would be to take several years, either the last 5 or more, average them out and compare those numbers to 2010, in order to see what 2010 was like in terms of sales. The conclusion, of course, is that 2010 was normal in terms of sales. In fact, it ran 4,225 sales ahead of average which is 5.03%. That’s the good news.

For those that are anxious to be pessimistic, there is still the opportunity to compare December 2010 to December 2009. That would show a 20.68% decrease.

And, for 2010, you must remember that the highest average sales prices were reached in that year.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Canada's New Mortgage Rules

(Ontario Real Estate Source)

By Brian Madigan LL.B.

Jim Flaherty, Canada's Minister of Finance announced some changes to mortgage.

In an effort to reduce the risk of exposure to rising interest rates, the following changes have been made:

1) the maximum amortization for mortgages has been reduced to 30 years from 35 years, in cases where the loan to value ratio (LTR) exceeds 80%.

2) Refinancing will be limited to 85% LTR (presently 90%).

3) CMHC insurance will not be available for lines of credit, only line of credit mortgages used to finance acquisitions.

The new rules will not come into effect for about 60 days.

Genworth is not effected, but the major banks play an important role in financing the acquisitions of properties. More recently, the banks have been pushing secured credit lines rather than traditional mortgages. This trend is to be curtailed.

The secondary market will respond to the gap with increased rates.

In the very short term, some increased activity in the market may take place. However, by selected mid January, the new rules become effective at the time of the Spring market.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Thursday, January 13, 2011

December Sales Steady Toronto and GTA


(Ontario Real Estate Source)

By Brian Madigan LL.B.



The sales in the GTA for single family homes held relatively steady in December.

So many times, December 2010 is compared to December 2009. But, actually the true measure should be the month of December in the last few years.

Let's see how many homes have sold in the month of December since 2004:

2004..........4,232

2005..........4,255

2006..........4,447

2007..........4,646

2008..........2,577

2009..........5,541

2010..........4,395

The average number of sales is 4,299. So, December 2010 is 2.23% higher than the average over the last seven years. It is risky to go back much further than that since the population was smaller.

However, it is even riskier to compare it to December 2009. That would show a 20.68% decrease. There were 1,146 fewer sales in the month of December 2010, than the month of December 2009.

That's really not that many, and it doesn't spell doom.

You have to remember that there was a world wide financial crisis in October 2008. The stock market had lost half its value. When 2009 started off the automotive industry was on the brink of bankruptcy. People weren't buying homes. The economy settled down following the government bailouts and the housing market normalized. But, by then there was a lot of pent-up demand from the Spring. Consequently, December 2009 was a trend setting month in a year that recorded the highest number of sales ever.

So, what does that mean? It simply means that December 2009 was a great month. It doesn't mean that December 2010 was a bad month showing numbers that are 20% off the market.

If you look at the numbers closely, you will see that it was rather steady and normal. You always have to look behind the headlines. All in all, this looks good for an active Spring market.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Wednesday, January 12, 2011

Chattels and Fixtures ~ Contracts are Irrelevant


(Ontario Real Estate Source)

By Brian Madigan LL.B.

The law related to the chattels and fixtures debate is the law of real property. Contract law has nothing to do with it.

So, it doesn’t matter whether we are talking about an agreement of purchase and sale, a mortgage, a chattel mortgage, a financing agreement, a construction agreement, a sale and leaseback, a sale of chattel property, a postponement of security agreement, or a lease.

The point is simple! Contracts between parties have nothing at all to do with the classification of items or objects as either chattels or fixtures. Real property law governs. Real property law will deal with the issue.

That causes a problem for real estate agents, since their experience in this field arises out of a contract between a seller and a buyer of land. There are clauses that list the debatable items. Oftentimes, their classification is strongly influenced by their recollection of whether such similar items had been noted as either chattels or fixtures in previous agreements. None of this is relevant.

As we have previously seen, there are 15 basic legal rules that deal with the distinction. In addition, there are numerous other small permutations which, of course, could be additional rules.

The reason behind the principles in the law of real property is the protection of innocent third parties. There are to be no secret agreements. The land is there, for all to see, and naturally conclude, one way or the other whether an object is a chattel or a fixture. It is to be evident, patent, not hidden from view, apparent for all to see. This test is objective. That adds to the certainly. No subjective intention here. The conclusion should be straightforward.

While the contract itself cannot resolve the matter of the characterization of the item, it can deal with collateral issues that may arise between the parties to the contract. But, just those parties, no one else.

So, if the seller asks to remove a fixture, and the buyer agrees, any mortgagee would have to consent as well. If it’s a fixture, then it’s pledged to the mortgagee as security. Only the mortgagee can consent to the removal. This issue will arise when a mortgage is assumed rather than discharged.

There may be a construction agreement where the contractor has the right to remove a fixture if the owner doesn’t pay. That’s not enforceable against third parties. Again, any mortgagee would have to consent. However, the owner and the contractor are free to agree to matters that only apply as between themselves. The moment there are third party consequences, we are back to real property law, and that governs the distinction.

So, the basic point here is that real property law trumps contract law when it comes to the classification.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Tuesday, January 11, 2011

Rebutting the Presumption (Chattels and Fixtures)


(Ontario Real Estate Source)

By Brian Madigan LL.B.



The process of converting chattels into fixtures, referred to as “annexation” is a difficult one.

The simple part is straightforward. If it’s attached, it’s a fixture, if it’s not, then it’s still a chattel.

The loose cannon in all of this is the “qualifier”, and that is the “intention” behind the placement. This intention is to be inferred from the circumstances. It is to be obvious to all upon inspection and examination. It is clear, it is evident, it is patent.

So, in that regard the “intention test” is an objective one. A subjective test would require evidence from the particular individual. You would have to call them as a witness and ask them what they intended. That’s not a good test for the law. That is very poor and inefficient. It would lead to conflicting results and a lack of certainty. Hence, the objective test. Whatever the problems might be, it’s better than a subjective test.

Let’s look at the case of some underground oil tanks. They were placed there for stability and ease of access. The tanks were really to be used just as tanks. They were not intended to improve the land. The court said they were chattels, even though attached.

Electric lights are ordinarily fixtures, but the court looking at these ones concluded that they were chattels because they very decorative, unique, expensive, and antiques. They had been attached in place for over 80 years.

Each case is to be determined on its own merits. Usually, the standard rule of thumb would be that electric lights are fixtures. That was the reason here for the court case.

However, you might consider a lighting store. Would all 1,000 lights that are illuminated and on display be fixtures? They weren’t all needed to light the place. They are attached and affixed to the ceiling in the store, but the obvious intention of the store owner would be to offer them for sale to his customers.

The reverse is also true. There are many examples of items which are not physically attached at all, but which are clearly intended to be part of the real estate. The keys to the house, the garage and the storage shed. The combination to the combination lock to open the gate. The tools, appliances, and parts (not attached themselves) which are associated with items that are truly fixtures.

Courts have included as fixtures, items which are part of a set, where the balance of the set are fixtures. In this regard, consider the case of a microwave oven, which is attached only by an electrical cord which plugs into the electrical outlet. Otherwise, it is supported by its own weight. The rest of the appliance set includes a stove, fridge, and dishwasher.

You appreciate that there could be problems in the future determining when the set has been broken, and whether the remaining items still constitute part of a set. It may be easy when a builder constructs a new home and offers the appliances as an included item, but far more difficult when the third homeowner sells the house 11 years later, with some appliances repaired and others replaced. Is there still a set? And, is the new microwave included?

So, you might have fixtures that:

1) are not attached at all, (keys)
2) don’t have a physical existence (combination),
3) are only slightly attached (microwave).

The intention of the attachment is sometimes difficult to determine. It must be inferred from the circumstances, the manner in which it is affixed, the duration or longevity of the means of attachment, and any other physical factors that are evident. Nails, of course would indicate a more permanent attachment than scotch tape. But, what about electrical tape and insulating tape, they are intended to last.

Consider the case of a printing press. When it is in production, it moves, and if it’s not held down in some manner, it can jump around the room. The printer, who rents his facility should not be punished if he clamps the printing press to the floor, or affixes it in some other manner. Most people would conclude that it was not his intention to give the printing press, worth some $70,000.00 to the landlord. That’s also the case with many trade fixtures. They are related to the business being undertaken, and not to the property.

You might also consider various machinery in an assembly plant. If you were to come across 500 items of equipment all bolted to the floor, you may very well have transformed the full set of 500 items into fixtures, whereby the real property is effectively a “production facility”, and the individual items have lost their significance as chattels. So, one must always be careful.

Another interesting case is that of the mobile home. Is it a chattel, or is it a fixture? You will find cases of each side of this question. Let’s consider the mobile home which contains an operating motor and which is driveable. Surely, it does not become part of the real estate simply because it is parked in a mobile park overnight? But, what if it were parked there for 30 years? Is there a point in time when the status might have changed?

You have seen luxury trailers. They are double sized units and two need to be abutted to create one house. They are placed upon the lot by cranes, and have no motors and are not driveable in any way. Clearly, these are the ones that are at risk. How are they attached to the ground, if at all. Some sit on their own wheels, and could be pulled away by a tractor trailer.

But, what about the smaller, older trailer? It is occupied for two or three decades. And, yes, it arrived on wheels as one unit, however, those wheels have deteriorated, disintegrated and the wheel rims have sunk into the sand. What happens then? You may also find that the occupants put up a fence as a skirt around the trailer. That makes it look more permanent in nature. Depending upon whether it looks like it’s there overnight or there forever, courts have made decisions on both sides of this issue.

In order to offer further light on the principles associated with the resolution of the intention-purpose test, the British Columbia Superior Court in Royal Bank vs. Maple Ridge Farmers (1995), stated:

• “First items resting on their own weight or merely plugged in would be chattels

unless appreciable damage would result from their removal.

• Items otherwise attached would be fixtures.

• When equipment is attached to a structure, all of its components are to be regarded as fixtures,

• even a part that can be removed easily, if the removal of that part would render the machine/fixture inoperative.

• Only in exceptional circumstances would one resort to the purpose test, as in the case of mobile homes or other expensive and large items.”

These principles have been quoted with approval in other cases, but they have probably not been around long enough to be considered “settled law”.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Monday, January 10, 2011

Chattels and Fixtures ~ The Legal Test


Ontario Real Estate Source

By Brian Madigan LL.B.

The most often quoted case dealing with the law of Fixtures in Ontario is the 1902 case of Stack v. T. Eaton Co.

Here is the test (in the words of the trial Judge) for determining whether an item is a fixture:

“I take it to be settled law:-

(1) That articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances are such as show that they were intended to be part of the land.

(2) That articles affixed to the land even slightly are to be considered part of the land unless the circumstances are such as to show that they were intended to continue chattels.

(3) That the circumstances necessary to be shown to alter the primâ facie character of the articles are circumstances which show the degree of annexation and object of such annexation, which are patent to all to see.

(4) That the intention of the person affixing the article to the soil is material only so far as it can be presumed from the degree and object of the annexation.”


The Rules

So, here are the rules:

Rule #1 – if it is not attached, then it’s a chattel

Rule #2 – unless the intention shows otherwise (fixture)

Rule #3 – if it is attached, then it’s a fixture

Rule #4 – unless the intention shows otherwise (chattel)

Rule #5 – Rules 1 and 3 create rebuttable presumptions

Rule #6 – The presumption may be rebutted by the degree of annexation

Rule #7 – The presumption may be rebutted by object or purpose of annexation

Rule #8 – the evidence required to rebut a presumption must be patent

Rule #9 – intention is to be determined according to an objective test.

This particular case is considered as a good statement of the law, and has been followed in countless cases. However, although the law seems clear, the rules are often applied differently in different fact situations.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Sunday, January 9, 2011

Chattels and Fixtures ~ The Conversion Process


(Ontario Real Estate Source)

By Brian Madigan LL.B.

The key concept in the chattel-fixture debate is the process of conversion.

Other than land itself everything that became a fixture started out as a chattel somewhere else. It was brought upon the property and “transformed” in some way into a fixture.

The transformation process in real property law is called “annexation”. That is the important legal term. It does not mean that something is affixed in some way by nails, screws, clamps, or glue.

It does not have anything to do with the agreement of purchase and sale. A contract cannot determine its status.

The process of transformation from a chattel to a fixture is something of a metamorphosis. Once complete, the chattel is so affixed to the land that it is part of the real property. This object and the land have become inseparable. The object is now considered to be “annexed to the land” in a legal sense. There is no longer a difference between this object and the land itself, although there once was.

In describing this annexation, the courts have often used the example of a builder A who constructs a building on lands owned by C. He obtained the bricks from B. Upon construction, the bricks became annexed to the lands of C. C owns the lands and the bricks in the building. There is now no difference, the bricks are no longer chattels, they are simply part of the land.

This example occurred sufficiently frequently that most jurisdictions enacted mechanics lien or construction lien legislation to protect those who supplied building materials to a construction site. Otherwise, real property law governed and both A and B lost their rights to C, who may very well have profited. Their claims rested simply in contract.

Intention counts! In fact, it is the most important ingredient in the test. Has there been a proper conversion? That’s the question.

The intention is to be determined objectively. What was the purpose of the attachment or the affixation to the property? Those are both questions simply of a physical nature. Annexation is an abstract conclusion in law, following an assessment of the nature of the attachment.

There are two elements relevant to the intention issue:

1) the degree of attachment,
2) the object or purpose of the attachment.

Once a chattel is attached to the land in some way, and even rather slightly, a presumption arises in law that it has become a fixture. This presumption can be rebutted.

The extent of the attachment strengthens the presumption. So, 20 nails would be better than one in this regard.

Chattels sitting upon the lands, resting only upon their own weight, are presumed to continue to retain their status as chattels.

Those were two basic principles or rules that developed at common law. However, both of these presumptions are rebuttable. In that regard, we come to the second part of the issue of intention. What was the object or the purpose of the attachment to the lands? Really, there are two choices here:

1) the purpose was to enhance the land, or
2) the purpose was for the better use of the chattel as a chattel.

In the first case, the object is a fixture, and in the second case, the object is a chattel. It’s as simple as that!

So, the legal principles are rather clear and straightforward. The problem arises only in respect to their application in particular fact situations.

The decisions made by the courts are not always consistent and not enough fact situations have reached the superior courts to have a clear set of binding precedents. In fact, by the end of the 19th century, the English courts had commented that it would be an exercise in futility to attempt to reconcile all the chattel-fixture cases.

While the principles don’t change, their application in different circumstances does.

At the outset, it’s important to know the rules.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Chattels and Fixtures


(Ontario Real Estate Source)

By Brian Madigan LL.B.

The series about chattels and fixtures will continue. The distinction between the two is important.

Fixtures are part of the land, they are real property.

Chattels are personal property and have nothing to do with the land.

Real estate agents often think that they are the only ones who ever deal with chattels and fixtures. They think that everything comes down to the agreement of purchase and sale, and whether they think something ought to have been included as part of the deal.

Actually, nothing could be further from the truth!

The law of real property deals with the distinction between chattels and fixtures. The law of contracts deals with personal property. In the Middle Ages, they were two separate bodies of law, each with their own courts and Judges.

Superior Judges dealt with important matters like land disputes. Such a senior Judge would have the authority and the power to make a court order which vested the ownership of land in the name of one of the parties. This was “real” power.

In the lower courts, the junior judges with lesser appointments would deal with contract matters and personal disputes. Money was a sufficient remedy. The item inappropriately obtained did not need to be returned. Money was enough.

So, during the 14th and the 15th centuries lawyers and Judges certainly knew the difference between chattels and fixtures. Your livelihood depended upon it, otherwise the litigating parties might find themselves in the wrong court and that meant that the had to start all over again in the right court, assuming that by then they were not out of time.

Today real estate lawyers do come across issue relating to chattels and fixtures but the problem is that the amount in dispute is usually very small. A used dishwasher might be worth only a few hundred dollars. A brand new central air conditioning unit may be $1,200. What this means simply is that no one can afford to go to court with these issues. They are small and no matter how they reach resolution, any compromise is better than a lawsuit. Then, at best, the matter might proceed to Small Claims court which today has a monetary jurisdiction to rule on cases up to $25,000. No matter what the decision, it is not a precedent and it is not binding on any other courts.

The lawyers who do deal with these issues all the time practice within the field of bankruptcy and insolvency. This is where the new law is made in this field.

There are basic principles that have been developed by the common law. There are also exceptions to the general rules.

So, first we’ll have a look at the basic principles and later we’ll look through the exceptions.

Once you understand the principles and the exceptions you will have a better understanding about how to approach the decisions relating to the chattel-fixture determination.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Friday, January 7, 2011

Personal Property (Sub-categories)


Ontario Real Estate Source

By Brian Madigan LL.B.

The laws related to personal property started out with a basic division:

1) chattels real, and
2) chattels personal.

Personal property was to be distinguished from real property. Personal property in the Middle Ages had nominal value. The real value in terms of wealth was in the ownership of land. Real property had value, and the wealthy class were landowners and landlords.

Chattels real were “leases”. This was a right that was held as against another. It was a personal right. So, when land possession was divided into time intervals and temporal occupation, it was thought of as a chattel. The term chattel is derived from the term “cattle”. The intention in the sale of a farm was to distinguish ownership of the herd from ownership of the land.

As time went by, it was clear that many of the important characteristics of real property applied to leases. The common law developed the “right of ejectment”. This was a right bestowed upon the tenant to oust the landlord and restore possession to the tenant. The case still had to be heard in the courts which dealt with chattel property rather than real property, but nevertheless it was a meaning recognition of rights in respect to chattels that were “real” in nature.

I’m sure they had a different definition of “the real thing” at that time.

Chattels personal represented the rest of the class of chattels. And, not surprisingly, they had two categories here:

1) choses in action, and
2) choses in possession.

The distinction here was tangible and intangible property. A chose in action was personal property which could not be reduced to possession. Listen, that’s the way they talked. I didn’t just make this stuff up. They had a sophisticated legal system and the first preliminary debate at the outset of the case was whether or not this property could be “reduced to possession”. That’s the exact legal expression they used, and naturally it has significance in later cases dealing with the difference between chattels and fixtures. Without understanding where this expression came from, the legal reasoning in the later cases might seem nonsensical.

A chose in action is an abstract concept. It is a right. It can be enforced by the courts by legal “action”. It is intangible.

If it could be reduced to possession, then it would be an “object” or something tangible. If that were the case, then the chattel would be classified as a chose in possession.

Promissory notes, debts, negotiable instruments were all abstract concepts, rights that could be enforced, but not sensed as objects by one’s senses in any way.

This category of choses in possession gradually grew throughout the centuries to include shares, bonds, guarantees, intellectual property, copyrights, trademarks, and patents.

The mere fact that a share might be represented by a share certificate did not make it a chattel in possession. It was still a right, or and entitlement to a certain percentage of a company. The share certificate was just evidence of the right. It was not considered to be the right itself.

When examining the difference between chattels and fixtures, it’s very important to keep in mind the different classes of chattels.


Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Real Property (Sub-categories)


Ontario Real Estate Source

By Brian Madigan LL.B.

There were two sub-categories that applied to real property.

There were:

1) corporeal hereditaments, and
2) incorporeal hereditaments.

So, that was certainly something of a mouthful, and doesn’t lead itself to a quick explanation. Let’s break it apart. Hereditaments refers to the right to inherit property. If there is property, either real or personal that may be passed along to the next generation, then it may be termed as an “hereditament”. That is, it may be “inherited” or “taken by heirs”.

Obviously, there are two classifications, ones that are corporeal, and those that are incorporeal.

In the context of real property, only those rights which are capable of being held in possession are corporeal. Those that are not, are incorporeal. Clearly, to understand the fine distinction we will have to refer to some examples.

Land is something may be inherited. It is also something which one may “hold in possession”. It is real, it is tangible. It is therefore “corporeal”.

An easement over the same land may be inherited. However, it cannot be held in possession. It is a right. It is an entitlement. It is not tangible. It exists as a “thought’. Consequently, an easement is an “incorporeal” hereditament.

The corporeal and incorporeal terms are derived from the latin word “corpus” meaning body.

An example of an corporeal property which is not capable of being transferred in law might be the “water in a creek or stream”, even though that water passes by, and through a creek or stream which is situate on the land. It cannot be conveyed in a deed or devolved in a Will.

The classifications do not seem particularly important today, but these fine distinctions played a significant role in the evolution of real property law. It’s difficult to understand the concepts behind fixtures and chattels without an appreciation of the historical development of real property law.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Thursday, January 6, 2011

Law of Property (Real and Personal)


By Brian Madigan LL.B.

There are two basic divisions in the law of property which goes back to the Middle Ages:

1) real property,
2) personal property.

These two same divisions continue to the present day.

The remedies were different. The successful party in the case of real property got an Order vesting the title to the land, while the successful party in an action related to personal property merely received damages. Consequently, there were different courts and different civil procedures applicable.

In a sense, land had substantial value and there wasn’t anything particularly unique about personal property. Money would constitute sufficient compensation. So, even in those days the unique value of land and “location, location, location” were important ingredients.

As the legal system matured, land was protected by a “property rule”, and personal property by a “liability rule”.

Leases were a little bit different again. In the 13th century, leases were clearly personal in nature. As time went by, leases adopted some of the characteristics of the protection afforded real property. So, by the 14th century, they had become a class unto themselves known as “chattels real”.

Personal property was divided into two categories:

1) chattels personal, and
2) chattels real.

Leases were something of a “hybrid” case, and some of the remedies available to landowners were made available to tenants. There was a new action for “ejectment”. That was a court order that would remove the landowner from possession of the property and restore it to the tenant under the terms of the lease. The term “new” is used in this context rather loosely, because after all, it was more than 700 years ago.

There were three areas of distinction where the laws related to land and chattels would be handled differently. They related to:

1) wrongful dealings with property,
2) the transfer of property,
3) devolution of property.

The legal system in the Middle Ages was rather complicated. In some ways it was simplistic and in other ways it was rather sophisticated, but just like today it was expensive and cumbersome. Remember, of course, that it was Shakespeare who said “first thing we do, let’s kill all the lawyers”.

Land was considered to be of significant value. If there was no Will, then there were clear rules of devolution determining the rightful heir. Essentially, the rules of primogeniture applied, and the eldest male child was vested with ownership.

Personal property was thought to have little value (on a relative basis). The scheme for intestacy was one third to the widow, one third to the children and one third to the church. This last one third was referred to as the “dead man’s part” and thought to buy a little better seat in the afterlife. However, that was changed in 1670, and the children received two-thirds. Essentially, that is the allocation that exists in Ontario for intestacies today.

Lawsuits which in effect enable the protection of legal rights were divided into two categories:

Actions in rem (a right against the whole world, like the ownership of land)

Actions in personem (a right against a particular person or individual)

As one examines the issue of chattels and fixtures today, it’s interesting to note that in the Middle Ages different rules, different laws, and different courts dealt with the matters.

So, if there ever was a time when you really needed to know the difference between chattels and fixtures (land), it was then, otherwise you could be thrown out of court.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Wednesday, January 5, 2011

Origins of Real Property Law ~ Two Categories (Friends and Foes)


By Brian Madigan LL.B.

Remember the Battle of Hastings? Well, actually, I suppose you don’t, but it was an important time in the history of real property.

William the Conqueror from France was the victor; and to the victor go the spoils.

In order to muster support for his cause, William offered two deals. Basically, he said “….are you with me or against me…. friend or foe….”.

The Pledge

1) Friends – you may keep your present landholdings subject to whatever rights may happen to exist,

2) Foes – you will lose your property, which will be confiscated by the Crown and re-let to friends of the Crown.

William, of course, was able to muster sufficient support, and he made good on his promises. His friends got to keep their lands in place. His enemies lost their properties and they were re-let to the “Tenants-in Chief” who were naturally his friends and supporters.

Through a concept of legal fiction, the lands of the supporters were deemed to have been granted to the Crown, and then re-granted to the landowners.

It is interesting that as centuries passed, this same concept was used throughout the world to colonize, settle and assume control over aboriginal lands.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Tuesday, January 4, 2011

Women’s Evolving Rights in Respect to Real Property


By Brian Madigan LL.B.

There is no question that the statutory provisions contained in the Married Women’s Property Act were helpful to the women’s liberation cause.

The changes started prior to Confederation.

When a woman married a man, she lost her “legal personality”. It merged with that of the husband who assumed legal ownership of her real property and chattel property with the limited exception of some personal items.

In exchange for this “bargain”, the husband was obligated to provide his wife with support. As you can appreciate, that didn’t always happen.

There were three periods of dramatic changes across Canada:

1) 1850’s to 1860’s – recognition and support to families in crisis,

2) 1851 and 1884 - all married women received the rights initially granted to deserted and abandoned wives. Laws provided that a wife's property belonged to her, and was not subject to her husband's debts, but it did not grant women "dispositive control over their property." It merely protected the property from the husband and his creditors. The intention was to preserve some assets for destitute families,

3) 1870s and 1880s - Married Women's Property Act of 1872 (Ontario) permitted wives to control their own "wages and personal earnings" and any profits from a business they owned. This legislation was designed to regularize creditors' rights, by subjecting married women to the same property laws that governed everyone else. The later Act passed in 1984 clarified that the husband was no longer trustee of his wife’s property

While the public seemed to appreciate the legal reforms, many judges loved the common law principles that had been established in the 13th century. So, while they were sympathetic to the circumstances that some women might find themselves in, they strictly construed the legislation often to the point where there was little left to the statute.

The actual fundamental problem in society was that women had no property. So, while there may have been an Act entitling them to dispose of property, they could rarely acquire it in the first place. This type of legislation was helpful in name only. The husband still owned all the property in the first place. The wife would not qualify for a mortgage on her own, and if her father were rich, he likely placed her property with trustees anyway.

It was not really until the reforms in the 1960’s dealing with family matters, divorce, custody, support and the division of property that these issues were addressed once again.

In the 1978 Family Law Reform Act, the concept of “marital unity” was abolished for once and for all. Further amendments in the 1986, Family Law Act (which is the current legislation) recognized the value of work undertaken at home by a wife as a valuable asset of the family worthy of a division of family assets.

Historically, that was a long time in the works, almost a century:

1872 – Married Women’s Property Act (the right to convey)
1968 – Divorce Act (Canada) permitting no fault divorce
1978 – Family Law Reform Act, abolishing “marital unity”
1986 – Family Law Act, permitting equal division of assets.

So, since that time, married women are just “regular people like everybody else”.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

Monday, January 3, 2011

Married Women and the Right to Own Property

By Brian Madigan LL.B.

Of course, married women have the right to own property. They have had that right ever since 31 March 1978.

That was the date that the Family Law Act (Ontario) came into force. Before that time, there was some uncertainty, although inroads had been made.

So, why did married women need a special provincial statute to change the law? That was due to the common law doctrine of “marital unity”.

At common law, the legal personality of the husband and wife were merged into one. And, the husband was “in-charge”. According to William Blackstone who wrote the first accredited commentaries on the common law, the wife was described as being under the husband’s “wing, protection and cover”. The obligation arose “out of beneficence”. Truly, that didn’t make all that much sense. This was a time long before “women’s liberation” when society was “sexist” in attitude. But, that’s a modern perspective.

Under this doctrine of marital unity the husband was responsible to look after his wife both during his lifetime, and afterwards for the remainder of her lifetime (should he predecease her).

A wife had the right to pledge her husband’s credit for the necessaries of life, but few, other rights until his death. At that time, as widow, she had the right to dower, which included one third of the profits from the land and the right to occupy the main house on the property until her death.

Upon marriage, it was clear that all the wife’s property became that of the husband. This included real property and chattel property. This was quite evident and well established by the 13th century.

There was one exception to the chattel vesting principle, and that was personal paraphernalia or personal effects. Often, they had to be confined to a box or treasure chest. Anything more, became the property of the husband.

Real estate was the major asset. A wife may have been in the possession of real property from her first husband or her father or an estate. As an unmarried woman, she possessed the rights of alienation, sale and disposition. But, once she married, those rights became subsumed with her husband. Converyancing practice was not well-developed in the 13th century, so in some cases, she signed with the husband, and in other cases, the husband signed alone, but one thing was always perfectly clear and that was that she could never sign alone. She had lost that right upon marriage.

However, that did not really stop the clever, wealthy landowner from protecting his daughter. He set up a trust. A trusted friend would be the legal owner of the property. She would be the equitable beneficiary and the new husband would never get his hands on the money or the land. The only drawback was that only the rich could afford to set up this type of trust, often referred to as a settlement.

This common law doctrine survived into the 19th century, and then various reforms were enacted to limit its effect. However, it was not until 31 March 1978, that the Province of Ontario abolished the vestiges of this doctrine forever. Dower and the husband’s corresponding right of “courtesy” were abolished, and it was confirmed that married women had the same rights as unmarried women, and that all women had the same rights as men.

Actually, 1978 is not that long ago.

Here are some of the important rights established in the Family Law Act:

PART VI
AMENDMENTS TO THE COMMON LAW


Unity of legal personality abolished

64. (1) For all purposes of the law of Ontario, a married person has a legal personality that is independent, separate and distinct from that of his or her spouse.

Capacity of married person

(2) A married person has and shall be accorded legal capacity for all purposes and in all respects as if he or she were an unmarried person and, in particular, has the same right of action in tort against his or her spouse as if they were not married.
Purpose of subss. (1, 2)

(3) The purpose of subsections (1) and (2) is to make the same law apply, and apply equally, to married men and married women and to remove any difference in it resulting from any common law rule or doctrine.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com