2007

Under the Real Property Act (Manitoba) (the "MRPA"), a person claiming an estate or interest in land (and as well, an estate or interest in a mortgage, encumbrance or lease) may, provided that the land (or the mortgage, encumbrance or lease) is under the new (titled Torrens system), file a caveat (in the prescribed form) which, in effect, records "notice" of the caveator's estate or interest against the land (or against the mortgage, encumbrance or lease).  This filing, in effect, establishes the priority of the caveator's estate or interest as against other claimants or holders of estates or interests in the land (or in the mortgage, encumbrance or lease).  Please refer to Sections 148(1) and 155 of the MRPA.

It is important to appreciate that a caveat is not an interest, estate or right of or by itself alone, but is merely a notice or warning (to all interested parties) that the caveator has an interest, estate or right.  That is why Section 154(1) of the MRPA requires that a caveat sets forth "the nature and particulars of the title, estate, interest or lien, under which the claim (of which the caveat is to give notice) is made".  There is case law (from Alberta and Saskatchewan) which holds that a caveat may not bind persons acquiring estates, interests or rights in the underlying land (or mortgage, encumbrance or lease), notwithstanding the caveat's due registration, where the caveat fails to either adequately describe the particulars of the caveator's estate, interest or right claimed, or, where the caveat fails to have attached to it (in effect, as a schedule), a copy of the underlying agreement, document or instrument which creates the estate, interest or right.

The fact that a registered caveat is something separate from the underlying agreement, document or instrument creating the claimed estate, interest or right must be kept in mind by counsel when caveats are discharged.  Caveats are discharged by the registration of the discharge instrument (in the prescribed form), or (occasionally) pursuant to action taken by the Land Titles Office consequent upon an interested person initiating what is commonly called a "30 day notice proceeding" under Section 150 of the MRPA.

Where a person decides to release, terminate, or otherwise give up such person's estate, interest or right which has previously been registered by way of a caveat, he, she, it, or as the case may be, they (or more accurately, the caveator's counsel) will typically discharge the registration of the caveat and do no more.  This is based on the assumption that discharging the caveat will of itself release, terminate or otherwise give up the underlying estate, interest or right.  While for some situations, simply discharging may be sufficient, it is this writer's view that the mere discharge of the caveat will not, or at least not necessarily, legally result in the underlying estate, interest or right itself being extinguished.  This writer believes that in addition to discharging, the caveator should also provide a written (simple) confirmation (ideally, to be stated to be issued to "all interested persons") that the caveator's estate, interest or right has in fact been released, terminated or otherwise extinguished.

Absent the issuance of such written confirmation, the (former) caveator or someone claiming under or through the (former) caveator may be able to argue that the estate, interest or right continues in effect, and, that, notwithstanding the discharge of the caveat:

(i)            while the estate, interest or right is probably not enforceable against persons acquiring interests in the land after the caveat's discharge, the estate, interest or right continues to be enforceable as against the owner of the land (or of the mortgage, encumbrance or lease); and

(ii)           absent agreement to the contrary, the holder of the estate, interest or right may be entitled to register a new caveat.

Some would argue that the act of discharging a caveat should be sufficient evidence to establish that the discharging caveator has released, terminated or extinguished the caveator's estate, interest or right.  In some instances, this may be a reasonable argument, but nevertheless, given the above-described function of a caveat (ie., it doesn't create an estate, interest or right, but merely gives notice and establishes the priority of the estate, interest or right), it would be far safer (from the perspective of someone who wants to ensure that the estate, interest or right is in fact extinguished) to insist that there be a written confirmation of such extinguishment plus a discharge of the caveat.

An interesting situation involving the need to differentiate between registration of an estate, interest or right (essentially to establish the priority of same) on the one hand, and the creation and existence of an estate, interest or right apart from any registration of same on the other hand, is found in Section 58(1)(c) of the MRPA.  Section 58(1)(c) provides that "any right-of-way or other easement, howsoever created, upon, over or in respect of, (the) land" binds such land in the title thereby affected without any registration or other recording of such right-of-way or other easement against the affected title.  If one agrees with the writer's foregoing thesis, then someone wishing to ensure the extinguishment of a right-of-way or other easement should obtain a written release, termination or other giving up of such right-of-way or other easement, whether or not the same has been registered.  Where a right-of-way or other easement has not been registered (and exists and binds the affected title by virtue of Section 58(1)(c)), it is obvious that there is nothing to be discharged in order to assist in removing or extinguishing the right-of-way or other easement; in such a situation, the issuance of a written confirmation of extinguishment is clearly required.  But the writer's thesis here is that even if a right-of-way or other easement has been registered by caveat, it is necessary to get a written confirmation of extinguishment of the same in addition to discharging the registration.

Consider the situation where there are two adjacent land owners and one has inadvertently effected improvements for the use and benefit of his or her land which trespass onto the other landowner's land.  The first mentioned land owner (the "Encroacher") discovers the encroachment and seeks and obtains a written easement agreement from the encroached upon land owner (the "Encroachee"), and the Encroachor registers a caveat giving notice of such easement agreement against the Encroachee's title.  Next assume that for whatever reason, the Encroachee decides that it doesn't want the encroachment to continue to exist, and induces the Encroacher to discharge the Encroacher's caveat.  Are the Encroacher's rights under the easement extinguished?  To be on the safe side, counsel for the Encroachee should insist on the Encroacher providing a written release and termination by the Encroacher of its easement rights (as well as insisting upon the Encroacher discharging its caveat).  The writer would also argue that in this situation, the release and termination document should also contain an extinguishment of any rights which the Encroacher may have had or might in the future have (or which might be acquired by any of the Encroacher's successors in title or anyone claiming under or through any of them in the future) under Sections 27 and 28 of the Law of Property Act (Manitoba) (the "MLPA").  These sections of the MLPA may give the Encroacher (or its successors and assigns) certain rights similar to what it had under the previous easement agreement, such rights arising/existing independently of any contract between the parties.

January 2011

 

 

A financial institution takes security from a business debtor on all of the debtor’s presently held and after-acquired personal property.  At the time of the entering into of the security agreement, either the financial institution is aware of the fact that the debtor owns one or more serial numbered goods and completes its financing statement accordingly (filling out the correct particulars, including the serial number or numbers, of the serial numbered good(s)), or, the debtor owns no serial numbered goods and the financial institution’s financing statement accordingly contains no particulars of any serial numbered goods.  At some point in the future, the debtor does acquire one or more serial numbered goods but this is not communicated to the financial institution, whether inadvertently or intentionally.  Subsequently, the debtor becomes insolvent or bankrupt and the financial institution decides to realize its security.  Consider the following:

(i)            with respect to the after-acquired serial numbered goods, does the financial institution have valid and enforceable security against same, as between the financial institution and the debtor?

(ii)           what is the financial institution’s position if, after the financial institution registered its financing statement, the debtor granted a security interest in its after-acquired serial numbered goods to another secured party who did properly register a financing statement against the serial numbered goods?

The answer to the first question is quite clear – because the rules regarding the need to properly register against serial numbered goods relate to establishing the secured party’s priority against persons other than the debtor (ie it pertains to “perfection”), as between the financial institution and the debtor, the security interest is enforceable against the debtor.

What about the financial institution’s security (with respect to the serial numbered goods) as against the subsequent secured party (who did properly register against the serial numbered goods)?  This question was answered – in favour of the subsequent secured party – in the Deloitte case, Saskatchewan Court of Appeal, 1987 (hereinafter, the “Deloitte Case”).  In that case, Bank “A” acquired a general security agreement from the debtor and registered it in the Saskatchewan Personal Property Registry.  At the outset, the debtor did not own any serial numbered goods, but subsequently acquired some which became subject to a security interest in favour of Bank “B” which Bank “B” did properly register against the serial numbered goods.  Even though Bank “A” had taken and registered its security interest before Bank “B” took and registered its security interest, the Court held that Bank “A”’s security interest in the serial numbered goods was not perfected and that Bank “B”’s security interest in them was perfected.  In the circumstances, failure to register against the after-acquired serial numbered goods amounted to a failure to perfect Bank “A”’s security interest, as required by the Act and its regulations.

Although the judgment in the Deloitte Case does not say so, a likely reason why Bank “A” failed to amend its original registration to include proper serial numbered goods particulars was because Bank A was simply unaware of the fact that the debtor had acquired the serial numbered goods.  This is a dilemma for creditors who wish to acquire security in all of the debtor’s present and after-acquired personal property – i.e., that at a later point in time, the debtor may acquire serial numbered goods that the creditor isn’t even aware of, and thus fails to properly perfect against such goods, with the result that the creditor loses priority to a subsequent creditor of the debtor (who does properly register against the serial numbered goods), or to the debtor’s bankruptcy trustee.

Where the subsequent secured party properly registers against subsequently acquired serial numbered goods and that secured party finances the debtor’s acquisition of the goods (i.e. acquires a “purchase money security interest” in the goods), the result is arguably fair.  But where the subsequent secured party does not so finance, the result is arguably unfair.

Absent a change in the legislation (to somehow exempt the original secured party from the need to amend its registration to cover subsequently acquired serial numbered goods where the original secured party has no knowledge of the acquisition of such goods by the debtor), and, subject to what I say in the next succeeding paragraph hereof,  the only suggestion that this writer can make is for the original secured party to vigilantly monitor its debtor’s business activities and acquisitions on an ongoing basis.

There is another possible argument that the secured party might make to give it priority over a subsequent secured party, where the original secured party does not register against after-acquired serial numbered goods, but the later secured party does so.  This argument would only work where the original secured party is able to establish that the debtor's subsequently acquired serial numbered goods were proceeds of the original collateral subject to the earlier secured party's security interest.  The argument would be based on the priority given to a secured party's security interest in proceeds which are derived from original collateral which was subject to the secured party's security interest, Sections 28(1) and 28(2) of the Personal Property Security Act.  The argument also hinges on the way in which the PPSA deals with non-perfected security interests in serial numbered goods, namely:

(i)            Section 43(8) dealing with consumer serial numbered goods provides that failure to duly register against serial numbers means that the secured party's registration is ”invalid"; and

(ii)           Section 35(4) which deals with a secured party's failure to duly register against serial numbers where the collateral is business equipment, does not say "invalid", but instead provides that the security interest is not registered or perfected by registration for the purposes of Sections 35(1), 35(7), 35(8) and 34(2), the point being that none of these Sections refers to or includes aforementioned Section 28.

August 2017

The primary rules for determining what are - and what are not - amounts and claims owed to a Manitoba condominium corporation for which the corporation is entitled to exercise a lien against a unit owner's condominium unit and such owner's interest in the common property, are determined by what's in The Condominium Act (Manitoba) (the "MCA").  These rules may be summarized as follows:

1. Section 162(1) of the MCA - where an owner fails to contribute to (i) the project common expenses and/or (ii) project the reserve funds, the corporation "has a lien" against the owner's unit and interest in the common property for:

(a)          the unpaid amount;

(b)          that interest owing on the unpaid amount; and

(c)          reasonable costs and expenses incurred by the corporation in collecting or attempting to collect the unpaid amount.

Section 162(3) of the MCA provides that where a corporation has registered a lien (against the owner's title), the lien secures both the amount which was unpaid (which led to the arising of the lien) plus, "automatically", future amounts that become owing by the owner on account of common expenses and/or reserve fund contributions, together with interest and reasonable legal costs.

1. "common expense" is defined in Section 1(1) of the MCA to mean (i) an expense related to the "performance of a condominium corporation's mandate, duties and powers", and, (ii) "an expense specified as a common expense by (the MCA) or by a condominium corporation's declaration.

It is unlikely that one would have any difficulty in determining whether or not an amount owed by an owner was - or was not - a contribution to the condominium reserve fund.  But what about common expenses?  Although the wording "an expense related to the performance of a (condominium) corporation's mandate, duties and powers" is itself fairly broad, defining common expenses as including amounts specified as such in the declaration opens up - at least in theory - the concept considerably.  Yet, it is this writer's "gut feeling" that some of the claims which a corporation might have against an owner which were listed and considered in the above-mentioned Alberta Manor Case, would not likely held by a Court to be "common expenses".  Examples might be:

1. Section 162(6) of the MCA provides that a condominium corporation has "the right to enforce the (registered) lien in the same manner as a mortgage is enforced under The Real Property Act".  Although not explicitly stated in the MCA, it is reasonable to assume that an amount owed by an owner to a corporation which was not enforceable via the aforementioned lien, would, in most cases, be enforceable against the owner by way of an action in debt.  Clearly, this was the position taken by the Court considering the matter in the Alberta Manor Case, and it is most likely that the same situation would occur in the context of a Manitoba condominiumized property.
2. Sections 13(1)(h) and 13(1)(i) of the MCA - these provide that a condominium declaration must contain a statement or specification of (i) "the proportions in which the unit owners are to contribute to the common expenses, expressed in (the) percentages allocated to each unit", and, (ii) "the proportions in which the unit owners are required to contribute to the reserve fund, expressed in (the) percentages allocated to each unit".

Many - if not most - common expenses will relate to the corporation's rights and obligations to maintain the common property, including common property which happens to be situated within or running through a unit owner's unit.  Where all the common property benefits or is available for the benefit of all of the unit owners, it is logical that all of the owners should contribute.  That also goes for expenditures which may be made out of a corporation's reserve fund which benefit or are capable of benefitting all owners.  Although perhaps not immediately obvious, the same reasoning would apply to the situation where a condominium corporation is obliged to take steps to remedy a problem which has been caused by, or which is the responsibility of one or two - typically one only - unit owner(s), but the remedying of the situation by the corporation benefits all owners.  As long as the unit proportions are considered to be reasonable by those buying and selling the units (and those financing acquisitions of units), the arrangement "works".  Readers who are familiar with condominium projects will know that the "usual" basis for determining unit proportions is the relative size and amenities (and perhaps the relative desirability of the location) of and pertaining to each unit, in relation to the same "qualities" applicable to the other units.

One question which arises from a consideration of how Sections 13(1)(h) and 13(1)(i) operate, is whether or not, either at the outset, or subsequently by way of a duly effected amendment, a condominium declaration could specify some - and probably most - of the common expenses to be allocated to owners based on their respective unit proportions, with other expenses allocated on a different basis.  This could be (i) equally amongst all unit owners and/or (ii) 100% to a particular unit owner or owners who are responsible for the situation or "problem" which has led to the corporation having to expend monies to remediate a malfeasant owner's (or owners') misconduct, negligence or just general "bad behaviour".  The above-mentioned Saskatchewan Albony Case dealt with a condominium community where it was desired (at least on the part of some of the unit owners) to have some common expenses allocated on the basis of the unit proportions (on the theory that such expenses benefitted each unit owner in some way measurable or referable to the value of a unit owner's unit, with other expenses being allocated equally amongst all owners (on the theory that all owners, regardless of the relative value of their units, benefitted equally from the incurring of such expenses).  From the reasoning in the Manor Case, it appears that the corporation could have legally allocated common expenses on the two different basis, but did not follow the legislation's requirements to properly amend the corporation's "constating documents" so as to properly effect such a modification.  That would suggest that in Manitoba, such a (two or more) pronged basis for allocating common expenses would be legally effective, or could be made so, if the proper procedures for amending the declaration were observed.  Or they were put in place at the outset when the condominium was created.

1. We know that a Manitoba condominium corporation's lien can (and indeed must) be registered against a recalcitrant owner's title, and that the lien may be realized in the same manner as a mortgage under The Manitoba Real Property Act, which means that the corporation can sell or foreclose upon the owner's title.  But what about the priority that such lien will hold in relation to other competing monetary claims against the owner's interest?