(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
