Property Law

What Are Property Rights?

The popular notion of property as something owned, encourages the idea of property rights as absolute. However, property in the legal sense is more accurately regarded as the combination of the legal rights of individuals with respect to objects, and the obligations owed them by others and guaranteed and protected by government. Property is either classified as private property owned by one or more individuals, or public property owned by government.

Property law is also classified under common law as real or personal. Real property (or realty) is land, any buildings on that land, any mineral rights under the land, and anything that is attached to the land or buildings that can be considered permanent. Personal property (sometimes known as chattels) includes any property that is not real property. The difference between real and personal property comes from early English law, under which property was considered "real" if the courts could restore to the dispossessed owner the thing itself, rather than simply awarding damages as compensation for its loss.

Origin and Development

Property law, for all of Canada's common law provinces, originated in England. The laws were established at various time — in Nova Scotia and (what later became) New Brunswick in 1758, Prince Edward Island in 1763, Upper Canada (Ontario) in 1792, Newfoundland in 1832, British Columbia in 1858 and the North-West (later the three Prairie provinces) in 1870.

The Constitution Act, 1867, gave legislative power over property and civil rights to the provinces. Thus general property law, including succession law and matrimonial property law (see Family Law), may only be enacted by the provincial legislatures. However, certain kinds of property (such as bills of exchange and promissory notes, patents, copyrights and interest for the use of money) are within federal jurisdiction. Parliament may incidentally affect property rights through legislation regulating interprovincial or international trade and commerce, through its power of taxation and through its power of expropriation. Nevertheless, general property law is the preserve of the provincial legislatures.

The development of property law has generally been gradual and unspectacular. In the latter part of the 19th century, Canadian provinces and territories enacted statutes that permitted married women to hold property separate from their husbands. Prior to this time, on marriage a woman's personal property was vested in her husband. Separate property for a married woman permitted the matrimonial home to be held in joint tenancy and during the 20th century this became popular.

Evolution of Fairness

In the 19th century, the succession law of real property became the same as that for personal property. The rule of primogeniture — inheritance by the eldest son — gave way, where there was no will, to a sharing of land among the spouse and children in the same way that personal property could be shared. In 1910 Alberta and Saskatchewan, following the example of New Zealand, became the first provinces to enact legislation restricting the power to leave property by will (respectively, the Act Respecting the Rights of Married Women in the Estate of their Deceased Husbands, and the Act to Amend the Devolution of Estates Act). Gradually, all the common-law provinces enacted legislation, called testators' family maintenance or dependants' relief legislation, that empowered a judge to set aside a will if the maker of the will had failed to provide adequate maintenance for a spouse or other dependants.

In 1975, in the Murdoch Case, the Supreme Court of Canada held that an Alberta rancher's wife whose marriage had broken down was not entitled to a share in the ranch, which was registered in the husband's name, even though she had worked hard to make the ranch a success. The unfairness of the law, graphically illustrated by this case, resulted in a profound change in matrimonial property laws throughout the common-law provinces in the 10 years following the decision. Provincial legislation now permits a judge to order a division of property after a marriage has broken down to achieve fairness between spouses no matter who owns the assets.

There has also been a corresponding response by the courts, and property law concepts have been modified to achieve fairer results. In the 1978 Rathwell case in Saskatchewan, the Supreme Court of Canada, in order to prevent unjust enrichment by the title-holding husband, resorted to the constructive trust as a remedial device to prevent unjust enrichment occurring from the contributions made to the acquisition of assets by the wife. In 1980 in Pettkus v Becker, the same concepts leading to an equal division of assets were applied between an unmarried man and woman who had been living together for approximately 20 years, where the contribution of the woman enabled the man to acquire assets.

Deeds and Land-Titles

The property laws of the common-law provinces are generally similar, but one area in which the real property law does differ is in the system of recording the ownership of land. In the Atlantic provinces and in southern Ontario, there is a deed registration system and in the four western provinces and in northern Ontario there is a land titles or Torrens system. Under the deed registration system, individuals establish ownership to land derivatively through their predecessors in title. Theoretically, to establish ownership they should trace the title to the original grant of the land from the Crown. In southern Ontario, it is necessary now to show a good root of title dating back 40 years.

Under the land-titles system or Torrens system, named after Sir Robert Richard Torrens who developed the system in South Australia, the state registers all lands within its jurisdiction by listing who owns them and who has claims against them. Under this system, prospective purchasers need only be concerned with who the register says is the owner and not with whether there is a good root of title.

Changing Property Types

Types of property reflect the economic and social aspects of society. Industrialization introduced new forms of property rights in factories and machines. The growth of joint-stock companies, the forerunners of modern corporations, created new property rights in the form of bonds and shares. Recently the nature of property rights has been transformed by the tendency of modern governments to draw in revenue and power and to pour forth money, benefits, services, contracts, franchises and licences. This government largesse may replace the traditional forms of wealth and new rules will be required to protect individuals from arbitrary government action. It has been suggested that property should no longer be defined solely as the right to exclude all others from the use or benefit of something, but should also comprehend the right not to be excluded from the use or benefit of the achievements of the whole society.

Charter Rights

Although the Canadian Charter of Rights and Freedoms does not expressly protect property rights, such rights are created and are therefore protected by both common law and by statute law — although both can be changed by legislation. Any constitutional guarantee should recognize that property is a social institution that must be constantly remolded.

A great jurist has warned that an absolute right of property would result in the dissolution of society. The importance of this warning can be best illustrated by considering a person who buys a gun. The property rights this person acquires in the gun cannot extend to permission to use the gun in any way. Similarly, landowners should not be permitted to pollute the air and water because this would lessen the enjoyment and property values of adjacent owners, and because of the moral obligation to pass on to succeeding generations a habitable planet. Property rights may therefore be modified to respond to new threats to the environment. There is no preordained harmony between private rights and public welfare; society will always face the dilemma of how to combine the efficient use of resources with effective regulation in the interests of all.

Quebec

In the widest sense, the law of property in Quebec comprises the principles regulating the ways in which all kinds of property may be disposed of and acquired — all the mechanisms and transactions by which property circulates. In a narrower sense, Quebec property law is concerned with defining what constitutes property. In fact, anything with a financial value can be defined as property, and such a definition would embrace any right that is assessable in monetary terms, and not merely rights in things ("real rights") or indeed those things themselves. Traditionally, however, property law is limited to the realm of real rights.

Quebec property law is firmly rooted in the French Civil Law tradition and derives, therefore, from Roman law. Anglo-American common law has had little influence on its institutions (except for the mechanism of the trust and a number of security devices). Quebec law, like French law, has historically attached the greatest importance to land and rights in land as objects of wealth. Indeed, feudal landholding (the Seigneurial System) was only abolished in Quebec in 1854, a necessary reform before the civil law itself could be codified in a modern way (1866). Land in Quebec, whether once held in seigneurial tenure under the French regime or granted by the Crown (since 1763), is now in all cases held by individuals in a "free" tenure, ie, it is held independently of the Crown as absolutely as possible.

The Quebec Civil Code contains the fundamental principles of property law applicable to private persons. Since 1866 it has been supplemented by much ancillary legislation regulating new forms of property (such as hydraulic power) and controlling the use of property in view of contemporary concerns (such as environmental hazards and cultural heritage). The Code nonetheless enshrines two fundamental tenets of Quebec property law: the right of private property (private ownership of lands and goods) and the free circulation of such property. The Code itself regulates private property in this sense, whereas statutory legislation regulates Crown or public and municipal property to which special rules apply.

Quebec civil law views all types of property either as "immovable" (land and its appurtenances, and all rights in land) or as "movable" (physically movable objects as well as claims for money and performances under contracts and obligations in general). This distinction is the thread that runs throughout Quebec law and it is the basis for many of the different legal technicalities attached to various properties. For example, rights of all kinds in land are subject to official recording in the land titles registration system, whereas rights in movable property are not.

Rights in things (technically "real rights") can be divided into three broad categories. Individuals may have either a right of ownership, ie, the right in their own property; a right in the thing belonging to another, ie, a right less than ownership but nonetheless composed of some of the prerogatives associated with ownership; or a right in the form of claim by a creditor to seize and sell a debtor's property to satisfy an unpaid debt.

Ownership, the most complete real right, is the right of using, enjoying and disposing of things in the most absolute manner, provided no use is made of them contrary to law or regulation. Ownership is an "exclusive" or individual right and, as a concept, is unitary. Thus, the law discourages two or more persons from owning the same property jointly (with certain notable exceptions such as of condominiums and aspects of property relations between married persons). Nor does the civil law admit the distinction, known to the common law, of legal and equitable ownership — for example, property shared between a trustee and the beneficiary of a trust. And, because ownership is viewed as exclusive and individual, the general policy of the law is that rights less than ownership vested in other persons are normally limited in time, so that the full integrity of the prerogatives attaching to ownership itself is preserved.

The rights in the second category — rights in things of which someone else is the owner — carry some of the prerogatives of ownership but are less complete than the right of ownership. The right of "usufruct" is the right of possessing, using and enjoying the property (movable or immovable) of another, subject to the obligation of restoring the property (or sometimes its equivalent in money) at the end of the period of enjoyment. This scheme, or variations of it, is often encountered in estate planning.

"Emphyteusis" is the right, under a long-term lease of land belonging to another, whereby the lessee agrees to make improvements in return for the right to enjoy the land as owner for the period specified. It is used principally in connection with large urban development projects. "Real servitudes" are rights of various kinds linking two lands whereby one land (or landowner) is subject to specified obligations or services in favour of the other, such as rights of view or of passage or the obligation not to build a wall above a certain height.

In the third category of rights, a creditor may have a right over the property of his debtor enabling him to seize and sell the property, under the authority of the court, if the debtor is unable to pay his debt. The property subject to seizure by the creditor may previously have been transferred into the possession of the creditor or may have remained in the possession of the debtor. These various security devices in Quebec are known either as privileges — ie, rights attaching to the property of the debtor that have been created by law to secure a varied list of creditors' claims; or as "hypothec," the right of the creditor to seize and sell the immovable property (land, buildings) of his debtor made liable to secure the debt by contract. The hypothec is the civil law equivalent of the mortgage in common-law Canada.

It is not certain in Quebec law to what extent it may be open to private persons to create, under the principle of freedom of contract, real rights or rights of property other than those already laid down in the civil code or in ancillary legislation. The most commonly used property rights are now provided for in these sources.

Fraud Threat

In recent years there has been an outbreak of mortgage title fraud in which criminals either forge or fraudulently convey or mortgage properties posing as the rightfully registered owner. This has been particularly serious in Ontario, where the provincial government was forced to make legislative changes to protect hundreds of innocent property owners from losing their legal title through no fault of their own.

In 2005 the Ontario Court of Appeal ruled in Household Realty Corp. v. Liuthat a fraudulent transfer or mortgage was valid and enforceable once registered. In addition, a forged mortgage was valid because the lenders did not participate in the fraud. As a result, the title was considered impossible to annul, or "immediately indefeasible." In a litany of Ontario cases, innocent property owners lost their title or were forced to comply with requirements of a mortgage they never applied for. The only recourse open to them was to apply for compensation to the Land Titles Assurance Fund that exists under the Ontario Land Titles Act.

Residential title insurance policies in Ontario provided the necessary coverage to property owners to protect against title fraud. But the insurers were forced to bear the costs of claims and were rarely compensated by the Land Titles Assurance Fund.

The Province responded by enacting the Ministry of Government Services Consumer Protection and Service Moderation Act, 2006, which amended sections of the act dealing with fraud. The amendments reversed the position taken in the courts in all previous cases by making it clear that fraudulent transfer or charge is invalid, or indefeasibility would be deferred. However, the subsequent transfer from an interim owner to an innocent purchaser would be indefeasible. As a result, purchasers should check property titles carefully.

In another action to protect innocent title holders, the Ontario Court of Appeal in the Lawrence v. Wright case overturned its previous position and ruled in 2007 that the finding in the Household case that fraudulent mortgages could not be voided was incorrect.

Finally, the Law Society of Upper Canada amended the Rules of Professional Conduct for Ontario lawyers. In cases where the lawyer acts for both purchaser and lender, he or she must provide both parties with all material information relevant to the transaction in writing. The Society suggested lawyers be on the lookout for things such as recent price escalation or recent transfers, even if not instructed to do so by the clients.