Two young friends pool their meagre resources to buy a piece of property together. Their goal is to build equity and have a place to live. Alone, neither could afford it. They split the mortgage payments and share the expenses. Things go well for the first few years and their equity increases. Time passes and things change. One wants to keep the real estate as a long term investment. The other needs that value to invest in a new business, pay for her kids’ schooling or get medical care for an aging parent. Whose goal prevails?
This is a relatively common scenario. In the absence of either a consensual settlement or a written agreement governing the relationship, the only recourse for solving the problem is to the courts. In such cases, the Partition of Property Act (the “PPA”) provides the court with the authority to “direct a sale of the property and a distribution of the proceeds”. Unless there is “good reason to the contrary”, the court will order a sale of the property. The court can also give directions about how that is to be done and the manner in which the sale proceeds are to be dealt with. The courts have a broad and unfettered discretion to refuse a sale where it “would not do justice between the parties.” Practically, the onus of showing this is on the party opposing the sale.
Two recent B.C. Supreme Court cases illustrate when the court will and when it will not order a property sale under the PPA.
The first case, ter Borg v. Morris, involved a scenario essentially identical to that described above. One of the co-owners opposed the property sale and did not have the financial wherewithal to buy the departing partner out. He argued that the sale should not be allowed because the property was his home; there were unresolved financial issues between them; there was disagreement over the terms of their original oral agreement in buying the property; and a sale would result in a significant mortgage prepayment penalty. In dismissing each of these objections, the court essentially noted that the prospect of a future sale always existed and any dispute over the accounting and financial penalty issues could be adjudicated after the sale. Similarly, it was always possible that the basis for embarking on the original business venture would change. Such a change would always prejudice one of the two owners: one risked losing his home and the other access to the money tied up in the property. As the competing hardships were essentially equal, the court found that the onus to establish “good reason” not to sell the property was not met. The property was ordered sold, subject to an accounting.
At the other end of the spectrum is the case of Cypress Gardens. Cypress Gardens is a common law condominium development, comprising 177 individual units owned by 135 different owners, each of whom was a “co-owner” of the entire complex. A number of the individual owners applied to court under the PPA to compel the sale of the entire 9.5 acre parcel to a developer. Most other owners opposed the application. While the court dealt with many issues in this rather complex case, it also considered whether a court ordered sale was warranted under the PPA.
The court noted that the facts and circumstances of each case must be examined to determine whether a good reason existed to refuse a sale. As a result, there is no general rule circumscribing the types of reasons that justify refusing to order a sale. Those reasons can include “serious hardship” and lack of "good faith, vexatiousness or maliciousness" on the part of an applicant.
After reviewing the evidence, the court found that a sale would “force particularly vulnerable people out of their homes, including young children, single parents, the elderly, the infirm, and people of very limited financial means.” Many would not be able to afford comparable property nearby. They would be forced to rent and/or move away to different municipalities. The court also found that there was a reasonable understanding among all the Cypress Gardens owners that, when buying in to the complex, they were buying individual homes and not simply fractional interests in a larger complex. For these reasons, the court was satisfied there existed “good reason” not to order a sale of Cypress Gardens.
Joint ownership of land is extremely common. If you wish to avoid the prospect of an involuntary sale in future, it is best to set out in writing with your joint-owners how and when the property may be sold. On the other hand, if you find yourself tied into joint property ownership and cannot reach consensus with your partners on what to do, there is recourse to the courts to help effect a sale as the cases discussed above demonstrate.
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