August 2013

Most readers will be familiar with the concept that certain land interests, although duly registered against the title to the affected land, will lose their registration priority where ownership of the land changes by reason of:

1. a municipal property tax sale;
2. a prior registered mortgagee's sale; or
3. an acquisition of title from a prior registered mortgagee in a foreclosure proceeding.

It has been long accepted that, on a policy basis, it is appropriate for a prior registered monetary interest, when realized, to extinguish subsequently registered monetary interests ("first come, first served").  Thus the purchaser at a property tax sale, the purchaser from a selling mortgagee and a foreclosing mortgagee will acquire title "free and clear" of subordinately registered mortgages and judgments.  Again, as a matter of policy, perhaps not universally accepted, but certainly acquiesced in, the purchaser at a property tax sale acquires title free and clear of previously registered mortgages and judgments, notwithstanding that the default in payment of property taxes arose only after the prior registered monetary interest was obtained for value and recorded against the property's title.

As a general rule, the same result will occur where a property tax sale purchaser, a foreclosing mortgagee or a purchaser from a selling mortgagee acquires ownership of the property subject to a pre-existing pre-registered non-monetary real estate interest.  However, the Legislature has recognized that there are certain types of land interests which, even if created and registered subsequent to the registration and acquisition of a monetary interest, should not be extinguished upon the occurrence of a property tax sale, mortgage sale or mortgage foreclosure.  These interests are listed in Section 45(5) of The Real Property Act (Manitoba) (the "MRPA").  Such interests survive sale and foreclosure ("Surviving Interests") usually, although not always, because their continuing/ongoing existence, will, to a greater or lesser degree, benefit the land affected.  Even if they do not benefit the land affected (and merely "burden" such land), the Legislature has concluded that the "greater public good" is best served by permitting Surviving Interests to continue to exist, notwithstanding that the occurrence of the aforementioned non-consensual - as well as fully consensual - property ownership changes.

Clearly, a Surviving Interest must be duly registered against the title to the affected land.  But is there a difference - or should there be a difference - between where a Surviving Interest is registered:

(a)          by way of the recording of the agreement or instrument which itself creates the Surviving Interest ("Direct Registration"); and

(b)          by way of the recording of a caveat (or notice) against the title to the affected land, giving notice of the Caveator's rights and interests which constitute and comprise the Surviving Interest ("Caveat Registration")?

It appears that certain Surviving Interests will only survive mortgage realization or tax sale if the Surviving Interest is recorded by Direct Registration, not Caveat Registration.  These are:

(i)            easement agreements, including party wall agreements right-of-way agreements;

(ii)           statutory easements;

(iii)          rights analogous to easements as defined and referred to in The Real Property Act Sections 111.2(1) and 111.2(5);

(iv)          building restrictions covenants;

(v)           unilateral declarations under The Real Property Act Section 76(2); and

(vi)          development schemes. 

In each of these cases, it appears that if the Surviving Interest is recorded by Caveat registration - which is clearly permissible - such registration will not survive mortgage realization or tax sale.  However if these interests are recorded by Direct Registration, they will so survive.

On the other hand, other types of Surviving Interests will survive mortgage realization and tax sale even though they are recorded "merely" by way of Caveat Registration.  These are:

(i)            caveats relating to zoning or subdivision matters;

(ii)           caveats relating to development agreements made under The Planning Act or The City of Winnipeg Charter;

(iii)          caveats relating to an expropriation;

(iv)          a notice (which is obviously like a caveat) registered under Section 12 of The Energy Savings Act;

(v)           notices filed under Section 7(1) or liens described in Section 36(4) of The Contaminated Sites Remediation Act; and

(vi)          notices under Sections 4(4), 5.4(3) or 5.10(2) of The Condominium Act.

Why can't all Surviving Interests be capable of surviving mortgage realization or tax sale when recorded against title by Caveat Registration?

In part, the answer appears to be based on the requirements (set out in Sections 76(1), 76(2) and 76.2(1) of The Real Property Act).  When a Surviving Interest of the types described above which will survive if recorded by Direct Registration, (excepting for statutory easements, rights analogous to easements and building restriction covenants) is registered, no such Direct Registration is permitted by the Land Titles Office unless all persons holding pre-existing registered interests against the affected title provide their written consents to the Direct Registration.  If a pre-existing registered mortgagee or holder of a judgment lien consents to the subsequent registration of a Surviving Interest by Direct Registration, then such consent is taken to be the equivalent of a subordination by the pre-existing registered interest holder.  This is understandable.  But what isn't understandable is the fact that no such consent (from pre-existing registered interest holders) is required to effect the Direct Registration of statutory easements, rights analogous to easements and building restriction covenants.  It also doesn't explain why caveats and notices of the types described above as surviving, even though recorded "merely" by Caveat Registration, gain this survival advantage without the need for the party on whose behalf the caveat or notice is being filed having to get the consents of all pre-existing registered interest holders.

Whether or not the above "regime" seems reasonable, the important thing for practitioners (and their clients) to remember is that the above-noted differences in the ability of certain land interests to survive - or not to survive - mortgage realization and tax sale must be kept in mind when acting for persons taking, granting and otherwise dealing with interests in real property.