Who Signs the Lease Renewal?

By Brian Madigan LL.B.

From time to time, there will be a change of ownership in a company. Possibly it will be taken over by another company or maybe the owners will simply change during the period of occupation of the premises.

So, what happens when the lease comes up for renewal?

Most of the time, if the payments have been “on time”, the Landlord will simply agree. But, actually there has been a material change in the ownership. New people are in charge. The prior owners controlled the Tenant company and now they do not. What should the Landlord do?

It’s reasonable to request some information. Possibly a credit check is in order! What about the new parent company guaranteeing the terms of the lease? There are protections that are available, and rarely are they employed by Landlords at lease renewal times. They often think ….”same old… same old… what’s the difference”.

Truly, they are dealing with a brand new Tenant and they should treat the Tenant as such.

Let’s approach the question a little differently. Let’s assume that you were the Controller of a large multi-national company, ABC Mega Corporation. You just bought XYZ Mini Company and it’s really just too small to be profitable in its present location. Let’s assume further that there is one year to run on its lease. When you bought XYZ, you guaranteed to the owners that you would pay the balance of the lease. So, that brings you up to the renewal date. Now, you simply renew for 5 more years! But, if you wished, you might simply close down the XYZ business in the first year of the 5 year renewal term. Wind up the company. The XYZ name might have no future benefit to you, and ABC Mega Corporation is not liable on the lease. You would be a hero at ABC.

Now, let’s go back to our Landlord in this situation. Get XYZ to tell you that there has been a change in control. Get credit checks done on both ABC and XYZ. Get both to sign the lease, or simply ABC alone. This way, you’ll be protected in the future.

Maybe there’s nothing sinister about it. If ABC doesn’t have the liability on its books for this lease, then it has a better balance sheet, and if it has a better balance sheet, it can borrow more money. That makes things riskier and more likely to go in the wrong direction, should there be a problem with ABC’s industry in the future.

From the Landlord’s perspective, it’s better safe than sorry.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Good Title and Better Title

By Brian Madigan

The traditional definition of good title in law, is a title without any qualifications, exceptions or explanations. A solicitor’s opinion on title would point out any matters that were relevant to the issue of ownership.

Such an opinion might read as follows: “you have a good and free, marketable title in fee simple, subject only to a first mortgage in favour of ABC Financial securing the principal sum of $100,000.00 together with interest at a rate of 5 and ½ % per annum, calculated semi-annually and not in advance….”.

You will notice that there are four distinct elements to the opinion.

First, the title is “good". That means that the conveyances from the previous owners of the property have been correctly registered.

Second, the title is “free”; that means that there are no encumbrances other than those which are specifically mentioned. Here, the opinion refers to a first mortgage.

Third, the title is “marketable”; that means it is acceptable in law, and should there be a dispute, Courts will force an unwilling purchaser to accept your title to the property. It may be freely conveyed in the future.

Fourth, the title is in “fee simple”. This is a reference to the nature of the actual ownership interest in the property. Fee simple is the highest form of ownership. A tenancy or life interest would be good examples of lesser interests in property.

So, what are some of the other qualifications that might be mentioned? And, do they make your title better or worse? Some obvious examples include the following: utility easements for telephone, hydro, water, sewers and gas. However, there are also mutual easements for support (where two properties share a common wall), maintenance (where the two walls are so close, that you must place the bottom of the ladder on your neighbour’s property to clean your eaves trough), ingress and egress (where you share a mutual driveway).

Truly, all these easements are necessitated in areas where the lots are quite small. So, that means the inner city where the property is expensive, and they are rarely found in the country. A mutual driveway in the inner city may be a great benefit, if the area generally has street parking. In other areas where everyone has their own driveway, a mutual driveway is a minus and not a plus. And in the country, you’re probably the only person with a mutual driveway.

So, it really depends upon the neighbourhood. Utility easements generally do not affect the market value of a property. Usually, they will be designated for underground services and they will be located around the perimeter of the lot. On occasion, they may run right through the middle of the backyard and in such a case, the owner might be prevented from installing a swimming pool.

However, there are title qualifications that are generally designed to increase the value of the property and to increase the corresponding value of the entire neighbourhood. They are called “restrictive covenants” and operate much like a municipal by-law that only applies to the developer’s properties. The restrictions may be imposed upon the builders, specifying that only houses of a certain size and quality of materials can be built. In some cases, chain-link fences are excluded and wood fences permitted. In others, wood fences are excluded and wrought iron fences permitted. There are often rules imposed upon the owners, for example not permitting large trucks or trailers to be parked upon the property. The general intention is to make the area more fashionable and highly desirable.

Technically, any qualification whatsoever detracts from what is referred to as “good title in law. However, in many cases these same qualifications add value to the property, so in effect; you have a “better title” than good title.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

8 More Principles of Value

By Brian Madigan LL.B.

There are eight more principles of value that are relatively widely accepted when it comes to real estate. They relate to some economic forces

Here are the Sshipers :

Substitution
Supply and Demand
Highest and Best Use
Increasing (decreasing) Returns
Progression
External factors
Regression
Surplus Productivity

Substitution ~ (looking for value)

Buyers will try to spend their money wisely and get the most for their money. A buyer will not pay more for something than the cost of obtaining an equally desirable alternative.

This particular principle is more of a principle in economic theory than real estate. It is a frequent guiding principle to buyers seeking appropriate choices. What can a buy? What does it cost? What else can I buy? How much extra does it cost? What do I give up if I want to save some money on the price? These are really just a simple set of choices facing every buyer. If there is better value elsewhere, the buyer will go elsewhere.

Supply and Demand ~ (primary market force)

If the product is in short supply, the price will go up. If the price goes up, demand will fall, since fewer buyers can afford the product. If the product is in abundant supply the price will fall, because there just aren’t enough buyers. If the price goes down, demand will increase, since more buyers can afford the product.

This market force has been at work in the early civilized market places and for thousands of years thereafter.


Highest and Best Use (houses not farms)

There is the current use of the property to consider and also its future or potential use. A 100 acre farm is a nice farm. It can be well equipped for faming operations and quite productive. Often the value will be estimated at around $10,000 an acre. This is good for a farm!

However, what if that same farm was right on the edge of a housing development. Now, it could easily be worth $200,000 per acre. That’s $20 million. You now know, that this farm is going to fall into disrepair. It will be sold to a developer for 20 times what a farmer would pay for it. By the way, there lots of land for farms but only a few properties along the edge of the expanding municipalities that can be converted into subdivisions.

Increasing/Decreasing Returns (just too many)

The plus factor slows down and might even turn negative. This concept in economics is the law of diminishing returns. Add a garage that cost $30,000, this may add $25,000 in value. Add a second one, and you may have little to no additional value. In fact, two separate buildings in the rear yard might be an eyesore. Add a third, an the property could actually be worth less. So, marble floors in the foyer are nice, marble floors in every room can detract value. Sometimes, wallpaper can feature a particular area. Today, if it’s throughout the house, buyers look to the cost of ripping it all out. The more you have the more it will cost to remove it.

Progression ~ (the cheapest house on the street)

Generally, you will find that properties are roughly similar in terms of value. However, the older the neighbourhood, the more likely you will find a significant disparity. In fact, someone may demolish a building and construct a new one. This new property with a market value substantially higher than the rest will start to pull up the values on the street. As the street gets better an better, there is a rather measurable benefit to the cheapest house. It goes up in value too. Because, people will pay a little more for this house on a good street than they will pay for this same house on a bad street.


External Factors ~ (airport and expressway)

Generally, there are some factors that are perceived to add value and others that will detract value. On the plus side:

A quiet neighbourhood
A court or cul-de-sac
Larger lots
Good setbacks from the road
Ravine and natural environments
Backing onto a golf course

On the negative side:

Noisy, too close to the airport or expressway
Lack of privacy
Too close to school
Too close to commercial plaza
Too close to hydro corridor
Too close to a dump or contaminated site

You have to remember when it comes to real estate: location, location, location. The property is in one spot and you can’t move it. So, if there’s and airport beside you, it’s going to get noisier in ten years. This is an undesirable influence. And, no matter what you do to the house, you can’t fix it.

Regression ~ (the most expensive house on the street)

This is the exact opposite of progression. If you have the best house on the street, its value will come down closer to the average street value. Basically, if you have $700,000 to spend, you want to be on a $700,000 street, not a $400,000 street. The higher priced house will be negatively impacted.


Surplus Productivity ~ (income is attributed to the land)

This is at first a somewhat difficult concept. The principle is this: once all cost have been satisfied, in a project, the net income flows to the land. Here. Think of location. So, if you have two identical farms, with the exact same costs. Once, you have some extra profit, that extra profit is attributable to the land (or the location). The superior farm had better soil, better sunlight, better growing conditions etc.

Let’s try one more example. Two identical buildings constructed by the same builder. They each cost $2 million to build. But, one is sitting on land that’s worth $2 million and the other is sitting on land that’s worth $500,000. Which property do you think is downtown? Which property will have the higher rents? And, which property will make the most profit. When you are figuring out the costs, once they have all be paid and satisfied the net income or the profit is then attributable to the location. So, when you are said and done, it could be that the suburban building provides more profit since its operating costs might be lower (decreased municipal taxes). Nevertheless, the point here, is that the net income is to be attributed to the land, and land in this context simply means location.

If you need to remember these eight principles of value, why not try the acronym “Sshipers”: short for Subsitution, Supply and Demand, Highest and Best Use, Increasing (decreasing) Returns, Progression, External factors, Regression, and Surplus Productivity. It’s a good way to remember them.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

The ABC's of Value: The Principles

By Brian Madigan LL.B.

There are a number of basic principles that are relatively widely accepted when it comes to real estate.

Here are the ABC’s:

1) Anticipation
2) Balance
3) Change
4) Competition
5) Conformity
6) Consistent Use
7) Contribution

Anticipation ~ The 3 Car Garage

How much would you pay for a garage? A double garage? A three car garage? Well, it all depends where the property is located. On small lots in the downtown areas of the City, a single car garage is at a premium. That is well worth having and something that you would pay for. What about the double car garage? In some upscale downtown areas, this is expected. In suburban areas it is commonplace. So, what about the three car garage? By the time you have a three car garage in downtown areas, buyers are valuing the potential of an additional lot, not the place for the third car. In the country, with significant distances to travel, it can be commonplace.

Let’s look at a quick example of an area in the suburbs that has houses with both single and double car garages. There is a certain benefit to the double car garage. It will house an additional car, it will provide storage space and it could serve as a workshop. So, there is a certain utility to it. In addition, it often provides a higher profile to the house and makes the entire building look bigger. You might find than houses with a single car garage trade in the $300,000 range and those with two car garages trade in the $320,000 range. In the same neighbourhood, a house with a 3 car garage might only trade for $325,000. All things being equal, reasonably speaking we could conclude that a single car garage is expected. A double car garage adds $20,000 in value and the three car garage, only an additional $5,000. Most buyers are likely to find only marginal additional utility associated with the additional garage.

The factors that buyers will consider are:

The additional potential resale value
The additional space
The improved appearance of the house

Buyers essentially anticipate the benefits that they will have in the future, if they purchase the property now.

Balance ~ (the house with a lobby)

Proportion is something well known to the Greeks and the Romans. It is very evident in their architecture. A large stately house with ascending columns to the second story will be very appealing in its appearance. Georgian and Colonial architectural continued to use these stately columns that you can still see today in the Greek Parthenon. However, large towering columns on a small narrow house just won’t work. In the first case, the columns added value and in the second, they did not.

Or, consider the case of a mini-mansion of 7,000 square feet. You cannot have a 3,000 square foot front hall. That’s a lobby, and should go with a hotel. And, if you just have a single car garage, that won’t work either. You need to consider both proportion and balance.

Change ~ (Today only)

No one can tell the future! Things change, and so do real estate values. If there are significant changes in the economy, then the value may change too. This can be either positive or negative news. The fact that a new manufacturing plant is coming to town, can be a real plus to a small area with limited housing stock. How many new people will require houses. The existing housing market can shoot up overnight. Look at Vancouver in anticipation of the Olympics coming to town. And, also think about small resort communities like Whistler.

Then, there could be plant closings. Think about Brampton losing 900 positions at the Chrysler plant. But, Brampton has a population of about 500,000 people. So, 900 positions really isn’t that much! According to Statistics Canada, all those job losses in the manufacturing sector have been made up in the construction sector.

In addition, to the local area, there are other factors that affect the entire economy including mortgage rates, the stock market, the level of employment, inflation etc. A very significant change could influence the housing market in relative short order.

So, the simple point here, is that value is a value for today, and tomorrow is tomorrow.


Competition ~ (one more builder)

Once you have a profitable opportunity to build and sell houses, you are likely to see more builders attracted to the business. At the outset and in a rising market both builders will do well. They will both be able to raise their prices and make a profit. Oddly enough, the mere fact that they are able to raise their prices will attract more business. Buyers will perceive that the area is “hot” and that prices are going up. If the values rise faster than inflation, then the cycle continues.

However, the third builder just cannot sit on the sidelines forever. As soon as he enters the marketplace, there is more competition. The prices cannot continue to rise as fast, due to the potential increased supply. But, this concept is slightly different than supply and demand. It’s just about more competition. A third builder will force all three builders to sharpen their pencils to attract business. Profit margins will decrease somewhat with competition.

Conformity ~ (residences away from industry)

Buyers like to see that an area is relatively stable and similar for a significant distance. You come to expect that Dofasco and Stelco will have fairly industrial areas surrounding them. If you had a heavy industry, it would be safe to locate around them. How messy can your business be? But, your heavy industry will not fit well in picturesque equestrian areas in Caledon and King that are subject to the Oak Ridges Morraine, various Conservation authorities and the Niagara Escarpment Commission.

So, most municipalities zone areas to have similar types of uses, and buyers often prefer to be in the centre and not along the edge. If you have an commercial area abutting a residential area, the preferred residential lots will be a considerable distance from the commercial plaza.

Consistent Use ~ (residential OR commercial)

The value of a property is to be calculated using one method and one method alone. Often you will come across a redevelopment area. Three houses all in a row on 50 foot lots are relatively similar but over the years, the owners have maintained them somewhat differently and improved, renovated and added-on. Today, they are now worth $500,000, $550,000 and $600,000. Those valuations are all based upon the houses as houses.

However, let’s consider the developer. He wants the three houses because he plans to tear them down and build a high rise condominium apartment. He is not interested in who has the nicest kitchen, or that someone added a sunroom. He wants the 50 by 150 foot lots. Furthermore, he is prepared to pay $1.5 million for each property. So, if you were planning to value these properties based on their commercial development potential, you would assess them all at $1.5 million.

What you can’t do, is value them at $1.5 million for commercial purposes and then come back and add an additional $50,000 or $100,000 in residential improvements. It’s one method, or the other, not both.

Contribution ~ (the added value)

Kitchens, bathrooms, sunrooms, swimming pools and tennis courts…. what are they worth? Well, if you don’t have one, they are worth what they cost to construct. Safely, kitchens and bathrooms seem to add about 70% of their cost to the value of the home. This means that a $30,000 kitchen renovation might only add $21,000 to the house value.
Sunrooms and swimming pools add about 50% and tennis courts add very little. So, when you come to think about it, all these “improvements” are poor financial investments, although some are better than others. Actually, the only improvement that adds value over its cost is landscaping, as long as the money is spent on trees.

The important issue here is to separate the objective value of the kitchen ($30,000) from its subjective value ($21,000) which is of course the additional amount that a buyer will pay for the house.

That’s seven, and there are eight additional principles to consider that affect value. The first seven are the ABC’s of value.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Real Estate Deposit Submission

By Brian Madigan

When is the deposit to be paid? To whom is it payable? When is the cheque to be cashed?Although, the questions are all simple enough, there is a somewhat complex set of rules that apply.

The first matter under discussion is when is the deposit submitted. The standard form agreement of purchase and sale provides two alternatives:

1) herewith, and

2) upon acceptance.

The buyer elects between these two choices. Herewith is no longer commonplace unless we are considering a bidding war, in which case if you are submitting an Offer without the deposit you might as well forget any chance of being successful.The second option is “upon acceptance”. This is now the most commonly selected option. Its own meaning is defined in the listing agreement specifically to mean within 24 hours of acceptance.

The agreement says:For the purposes of this Agreement, “Upon Acceptance” shall mean that the Buyer is required to deliver the deposit to the Deposit Holder within 24 hours of the acceptance of this Agreement.

The next issue under consideration is the cashing or deposit of the cheque. So, you have to look at the Regulations under the Real Estate and Business Brokers Act 2002, and concerning the deposit it says:

Deposit within five business days

17. (1) If an amount of money comes into a brokerage’s hands in trust for another person in connection with the brokerage’s business, the brokerage shall deposit the amount in the trust account maintained under section 27 of the Act within five business days.

(2) In subsection (1),“business day” means a day that is not, (a) Saturday, or (b) a holiday within the meaning of subsection 29 (1) of the Interpretation Act.

Here, the time period is 5 business days, not just 5 days. Further, the time period commences when the money comes into the hands of the brokerage. In this regard, there are 3 separate conditions to be met:

1) the money must come into the hands of the brokerage,

2) it must be in trust, and

3) it must be for the benefit of another person.

If all three conditions are met, then the 5 business day period commences. Usually, #2 and #3 will be relatively straightforward. Condition #1 will be the only real issue under consideration.The physical cheque might be delivered by the buyer’s agent (with the Offer) and be in the possession of the listing agent. If it is provided in escrow pending the acceptance of the Offer by the vendor, then the 5 day period would not commence until after it has been released from escrow.

However, if it is not otherwise noted as to be held in escrow, then the delivery and possession of the physical cheque itself gives rise to the obligation to deposit the cheque. The time period starts upon receipt. That means that technically the deposit cheque may have to be deposited in the trust account prior to the seller having considered, accepted, or rejected the Offer.

The Act does not say that an agreement is required to give rise to the obligation to deposit the cheque. The operative provision is “comes into the hands”. That can occur before any actual agreement is reached. And, while the purchaser may not wish to have his cheque cashed early, if there is no provision to have it held in escrow under the terms of the agreement, the simple wording under the standard agreement would require the deposit of the cheque into the trust account.

The time limited for acceptance of the Offer is not relevant.You will also notice that the provision says “……within 5 business days…”. It does not say “… wait until the very end of the 5 day period…”. Accordingly, a purchaser submitting a deposit cheque is at risk that the cheque will be cashed immediately. So, make sure the money is in the account, or put a clause in the agreement that the cheque is to be held in escrow until the agreement has been executed.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Equitable Mortgages and Legal Mortgages

By Brian Madigan LL.B.

At common law, a mortgage was actually a transfer of the legal title to the property. Upon payment in full of the mortgage principal and interest, the former “property owner” was entitled to a reconveyance of the title to his property. Then, once again he would have legal title.But, the interesting question was: “how would you describe his interest before he paid off the mortgage”?

He was not the legal owner, that description now befell the mortgagee. What he did have was a certain common law right which was the right to redeem the property upon payment. Just to complicate things a little more, there were two separate Court systems in England up until the late 19th century: Common Law Courts and Courts of Equity. The claim for the return of the legal title fell under the jurisdiction of the Courts of Equity. Hence, this right to redeem property came to be referred to as the “equitable right of redemption”.

So, in a technical sense, the owner of real property that was mortgaged was only the beneficial owner, or was the owner of the equity of redemption.Now, there’s one more step. This involves a second mortgage. The beneficial owner who places a second mortgage on title can only transfer the equitable right of redemption (because that is all he has left). But, he still retains a further equitable right of redemption in respect to the second mortgage. This could go on and on.

Consequently, second and subsequent mortgages came to be referred to as “equitable mortgages”But, that’s not all there is. The Land Titles system does not register a transfer of the legal title. The owner retains title and the mortgagee obtains a Charge against the title (like a lien). That has been the case since its inception in the latter part of the 19th century.

The Land Titles system is commonplace in the western Provinces and in about one half of Ontario. As the subdivisions are registered in Ontario, they all will fall under the Land Titles system. In the interim period, there is a program to convert all Registry lands to the Land Titles system. The Land Registration Reform Act changed the system of registration in 1984 when it came into force. The Land Titles system remained intact, but the common law rules in the Registry system changed. No longer was a first mortgage a conveyance of the legal title. It was only a Charge upon the lands or somewhat like a lien, just like the Land Titles system.

The new document in use was now referred to as a MORTGAGE/CHARGE. So, what’s left over in terms of the conveyance of the legal title:

1) old mortgages in the Registry system, registered prior to 1984,

2) old mortgages in Land Titles where the original mortgage was registered when the property was recorded in the Registry system, and then transferred to the Land titles system.

In Ontario, a true “legal mortgage” is rare. Legal as used here refers to a conveyance of the legal title. Having said that, it is still the case in some other Provinces as well as a substantial number of States in the United States. As time goes by, the term “legal mortgage” will lose its meaning and only have a footnote in real property law history. It will evolve into a rather new an unrelated meaning. A legal mortgage will simply mean any mortgage which is valid and enforceable at law.

Similarly, the term “equitable mortgage” will also change in meaning. Historically, it only makes sense if you understand the term legal mortgage. So too, it will have to evolve. In all likelihood it will take on the meaning of an intention to offer a pledge. It will be synonymous with a beneficial mortgage. In other words, some initial steps were taken provide security but no actual registration took place.

For example, a developer has two properties. He secures a mortgage on the first in favour of his bank, and pledges (offers his assurance) that he will at some time in the future grant a mortgage on the second property if the bank so demands. Before the demand for the mortgage, the bank has an unregistered, unsecured beneficial interest or “equitable mortgage” upon the second property.

Let me put it this way, 1984 was 23 years ago. These two terms have to change their meaning (at least in Ontario). Even George Orwell would be impressed!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Jail and Million Dollar Fines under Environmental Protection Act

By Brian Madigan LL.B.

The Court has handed down a rather stiff penalty to three men who operated a waste disposal site. Jail terms of three to six months were awarded against the men and $1.7 million in fines assessed against their companies.

A fire occurred at the Vaughan waste transfer site in October 2004. The fire broke out and continued to burn for two weeks. They were supposed to have 1,500 tons of garbage but when the fire occurred they had over 19,000 tons. Obviously, this was a flagrant abuse and not surprisingly, hence the stiff penalties.

In fact, one of the accused had two years earlier been assessed a penalty of $710,000 and been ordered to stay out of the waste management business. However, that didn’t stop him.

The cleanup cost the taxpayers in excess of one million dollars. You can very well imagine the number of attempts made by the Fire Department and other officials under the Environmental Protection Act to have the waste facility cleaned up.

Operating at more than ten times capacity, the risk of fire and the risk of contamination was excessive. The track record of those involved made in apparent that it was easier and far more profitable simply to ignore the law and continue to operate an unsafe facility.

So, on the one hand, four years after the event, the penalties may seem appropriate, why wasn’t this facility simply shut down before the fire? An ounce of prevention is worth more than a pound of cure.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Unjust Enrichment Demands Payment

By Brian Madigan LL.B.

What happens if a party promises to leave their house to someone if they help with the chores? Do they get the property? Is this an enforceable contract? Can you have an agreement to make a Will?

George Constantineau was a student and he went to live with his rich aunt Laura Brunet while he attended school in Ottawa. George lived with his aunt and he was to perform certain chores that she might ask of him from time to time. He lived there for 6 months. Needless to say, aunt Laura died and there was no Will leaving the two properties that George said had been promised to him. So, this was a difficult case to administer.

George said he should have two properties, that was the deal. Only one little problem, there was nothing in writing to support this. It was George’s word alone. After all, aunt Laura was now dead, so no sense asking her.There case brought before the Courts. The Administrator of the Estate, Guaranty Trust Company pleaded that according to the Statute of Frauds, the “agreement” was to be in writing. And, this was just the sort of case that the Statute of Frauds was designed to prevent.

George’s counsel argued that there was an exception to the general rules and this fell within the exception. Part performance was pleaded. This was not just a contract to be performed sometime in the future, this was already in the works and George had already upheld his part of the bargain.The Courts struggled with this case all the way to the Supreme Court of Canada. The Honourable Mr. Justice Rand made some observations:

• The best explanation of it seems to be, that the payment of money is an equivocal act, not (in itself) until the connection is established by parol testimony, indicative of a contract concerning land . . . All the authorities show that the acts relied upon as part performance must be unequivocally, and in their own nature referable to some such agreement as that alleged.

• It must be unequivocal. It must have relation to the one agreement relied upon, and to no other when it must be such, in Lord Hardwicke's words, "as could be done with no other view or design than to perform that agreement".

• I am quite unable to distinguish that authority from the matter before us. Here, as there, the acts of performance to themselves are wholly neutral and have no more relation to a contract connected with premises No. 548 than with those of No. 550 or than to mere expectation that his aunt would requite his solicitude in her will, or that they were given gratuitously or on terms that the time and outlays would be compensated in money.

• In relation to specific performance, strict pleading would seem to require a demonstrated connection between the acts of performance and a dealing with the land before evidence of the terms of any agreement is admissible.

• The facts here are almost the classical case against which the statute was aimed: they have been found to be truly stated and I accept that; but it is the nature of the proof that is condemned, not the facts, and their truth at law is irrelevant. Against this, equity intervenes only in circumstances that are not present here.

• There remains the question of recovery for the services rendered on the basis of a quantum meruit. On the findings of both courts below the services were not given gratuitously but on the footing of a contractual relation: they were to be paid for.The statute in such a case does not touch the principle of restitution against what would otherwise be an unjust enrichment of the defendant at the expense of the plaintiff.This is exemplified in the simple case of part or full payment in money as the price under an oral contract; it would be inequitable to allow the promissor to keep both the land and the money and the other party to the bargain is entitled to recover what he has paid. Similarly is it in the case of services given.

• The respondent is entitled to recover for his services and outlays what the deceased would have had to pay for them on a purely business basis to any other person in the position of the respondent. The evidence covers generally and perhaps in the only way possible the particulars, but enough is shown to enable the court to make a fair determination of the amount called for; and since it would be to the benefit of the other beneficiaries to bring an end to this litigation, I think we should not hesitate to do that by fixing the amount to be allowed. This I place at the sum of $3,000.

So, that is the law of “unjust enrichment”. The Courts would not enforce an agreement at common law, since the Statute of Frauds would have required it to be in writing. The part performance exception would have required specific reference to the two properties under consideration. They were obviously worth a lot more than $3,000. However, George did do some work and he should be compensated. Accordingly, the Court awarded him the value of his work computed on a businesslike basis.

Comment

There are certainly some lessons here:

• If you are Aunt Laura, please make a Will

• Don’t put it off, that’s unfair

• If you are George, see to it that you get something in writing• Even an agreement to convey is enforceable

• Get a lawyer involved, the time between the promise and the final resolution by the Court was 23 years

• Yes, I appreciate that some lawyers can be slow, but two decades should have been more than enough time.

If you would like more information, kindly refer to Deglman vs. Brunet Estate[1954] S.C.R. 725.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/

Restaurants and the Three Mice Theory

By Brian Madigan LL.B.

You might wonder what this is about. If the second mouse gets the cheese, what’s left for the third mouse? Actually, the money!

So, here’s the basic theory. The restaurant is started by an adventurous entrepreneur with lots of ideas, lots of investors and lots of money. The new theme restaurant is outfitted elaborately with the best of everything. One problem, with all the costs, you just can’t make any money. The capital can’t be amortized over the lifespan of the operation. This project just isn’t going to make any money, even though it’s busy and doing a regular business.

Now, the cost cutters come in. The value is decreased. The portions are trimmed, the quality is lessened, the management cuts back on the wait staff. Now, the clientele starts to look elsewhere. So, there is a second round of cost cutting, fewer wait staff, more waiting time, less quality and smaller portions again. The inevitable result is that the remaining loyal clientele disappears and the restaurant closes its doors.

The proprietor places the business for sale at a fraction of the cost of the investment, often about 50 to 60 cents on the dollar. Frequently, a buyer is found who takes a bite at the cheese. However, we have the same old routine in motion all over again. Decreasing quality, decreasing service and decreasing clientele.

This next stage offers one further substantial reduction. Either this time, the second owner takes a further 50 cent hit, or the Landlord steps into the fray for non-payment of the rent. The cost of the restaurant now is about 25% of the real cost, or less if the Landlord is involved and the third owner can make a go of it.

One thing to keep in mind: restaurants are risky and costly. So, it’s best to start out with a plan and stick to it. It can be very tempting to let costs run up, if others are involved. Select a restaurant management consultant. Know what it is going to cost. Determine your market niche and devise your plan accordingly.

It is very, very easy to lose money in the restaurant business. And, the easiest way to do that, is to invest too much capital in the first place. The caution here is to be careful. In this scenario, you want to be the third mouse!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters,

Coldwell Banker Innovators Realty

905-796-8888

http://www.ontariorealestatesource.com/