November 2014

Readers of my previous paper (the "Previous Paper") on this topic will recall that it contemplated a fairly common situation in which a farming couple wished to turn over ownership of their farm property to their offspring, but retain - during the balance of their lives - ownership of their home without retaining ownership of any of the land underlying the home.  The motivation for seeking out such an arrangement is to avoid the time and expense typically incurred were the retiring farm couple to transfer ownership of their farm property to their offspring (or to a corporation owned by their offspring), and then lease back the home (together with either the land immediately underlying the home's footprint, or some slightly larger area of land, in any event, something less than 80 acres.  Under The Manitoba Planning Act (the "Planning Act"), approval for such a lease arrangement would be required to validate the lease and allow the couple to caveat the affected land with notice of their leasehold rights.  The Planning Act exempts a long-term lease where the leased land is at least 80 acres, but in the situation envisaged, the parties do not wish to lease that great an area.  The Planning Act also exempts a lease of "floor space", but it is arguable as to whether or not a lease of the whole of the house, excluding the land immediately underlying the house's footprint, would be considered to be a lease of floor space in a building.

In the Previous Paper, the writer attempted to point out that, although conveyance of ownership of a house excluding the underlying land did not seem to be what the Legislature intended when it enacted the Planning Act's subdivision control rules and requirements, nevertheless, a strict reading of the legislation and a strict application of how the common law views an improvement to land, would suggest that such a conveyance (of a house alone) would be prohibited under the Planning Act, unless subdivision approval was given thereto.

It has been recently pointed out to the writer that there is probably another legal impediment to attempting to create a valid and enforceable conveyance of ownership of a house alone (excluding the underlying land).  This has much to do with the modern statutory framework of land ownership, in particular, as provided for in The Manitoba Real Property Act.  As noted in the Previous Paper, Canadian Courts have from time to time recognized dispositions of ownership of improvements to land made or provided to be made without a concurrent disposition of the ownership of the underlying land.  In other words, it appears to be theoretically possible to treat an improvement to land as a chattel, or at least to be able to convert the nature of a land improvement, from "real property" to "personal property".  Incidentally, such an arrangement should be contrasted with the situation where the owner of a building and the underlying land physically removes the building from the land and has it moved to another location where it is placed on and thus forms part of the land at the new location; this is an actual and physical separation of an improvement from the underlying land, but that is not what I was dealing with in the Previous Paper.  Where the land improvement, ownership of which has been conveyed separately from the underlying land, physically remains on the underlying land, there is simply no legally established public registry office in which the transferee of ownership of the building can record notice to "all the world" that the building is now under ownership which is separate from the ownership of the underlying land.  The (new) owner of the building would not be able to record a caveat against the underlying land owner's title giving notice of the building owner's rights and interests, simply because the building owner's rights and interests are rights and interests in a chattel, not in land.  So far at least, The Real Property Act does not provide for a system of titles to be issued to the owners of buildings only.

With there being no mechanism for the owner of a building, notionally separated from the underlying land, to give notice to third parties dealing or who may deal with the owner of the underlying land, of the building owner's rights and interests, it is arguable that a Court would give priority to third parties acquiring rights and interests in the underlying land from the underlying land owner, over the building owner's rights and interests.  The claims of the underlying land owner's mortgagees, lien claimants and bankruptcy trustee come to mind.  It may also be "telling" that the Legislature felt it necessary to statutorily intervene in real property law in order to validate dispositions of condominium units and air space parcels, separated from the ownership of the land underlying a condominium or air space parcel project.

It is the writer's view that the "real" problem in the retiring farm couple situation which the writer postulated in the Previous Paper is not the land law problems discussed above, but rather the lack of an unambiguous exemption in the Planning Act so as to permit a retiring farm couple to be able to long-term lease their home, with the land underlying the home and reasonably adjacent thereto, being less than 80 acres.  Until an appropriate legislative amendment is made to the Planning Act, counsel should be very cautious in encouraging their clients to enter into arrangements conveying ownership of a home without including the underlying land.