Number 444, February 2011

TITLE CONSIDERATIONS: THE CLAUSE 9 PROBLEM

Clause 9 in the Contract of Purchase and Sale requires a seller to deliver title "free and clear of all encumbrances except subsisting conditions, provisos, restrictions, exceptions and reservations including royalties, contained in the original grant or contained in any other grant or disposition from the Crown, registered or pending restrictive covenants and rights of way in favour of utilities and public authorities, existing tenancies set out in Clause 5, if any, and except as otherwise set out herein."

It is important to note that Clause 9 does not except easements, building schemes or certain other encumbrances from the seller's obligation to clear title. This means that unless the contract specifies those encumbrances to remain on title, the seller is obliged to deliver title clear of any encumbrances not excepted by Clause 9. A listing licensee who fails to address this issue places the seller at risk of being in breach of contract if the seller cannot deliver title clear of the encumbrance.

To prevent sellers covenanting to provide clear title when they are not able to do so, a licensee should list in the contract all encumbrances that are to remain on title at completion. Alternatively, a licensee should use the Acknowledgement of Title Clauses recommended by the Real Estate Council of BC.¹

Can a buyer justifiably repudiate the contract if the seller cannot deliver title free and clear of non-financial encumbrances not excepted by Clause 9, or by any other provision in the contract? It depends on the circumstances.

Whether a buyer will be permitted to repudiate the contract will depend on the court's view as to whether the easement will significantly affect the buyer's use and enjoyment of the property.²

In Price v. Malais³, the court found the buyers were entitled to repudiate the Contract of Purchase and Sale when the seller was unable to deliver title free and clear of an easement in favour of the Peachland Irrigation District. The court considered the easement a significant encumbrance because of the extensive size of the easement, and the rights granted to the holder of the easement. The court found, however, that a second easement registered on title in favour of the gas company was so trifling as to not interfere with the buyers' enjoyment of the property and consequently its presence on title would not have justified the buyers' repudiation of the contract.

In Bernard v. Weiss⁴, buyers of a home in Richmond repudiated their Contract of Purchase and Sale because the seller was unable to deliver title free and clear of certain easements registered against title in favour of hydro, telephone and sewer for the Municipality of Richmond. The court found that the easements were of such a trifling nature that it did not justify the buyers' repudiation. The court stated:

Any claim for breach of contract against the seller for failing to deliver clear title will undoubtedly result in a claim by the seller against his or her agent for negligence. In Price v. Malais, the sellers successfully sued their agent for failing to mention or note the easement in the contract, and for allowing the seller to covenant to deliver clear title free of the easement.

Licensees are reminded of their obligation to investigate title thoroughly before listing any property for sale, to investigate the nature of any non-financial encumbrances on title and to ensure that the contract specifies all encumbrances that are to remain on title.

Jennifer Clee
Real Estate Errors and Omissions Insurance Corporation
Vancouver, BC