A breach of Section 73 of the Land Title Act #255

By Gerry Neely
B.A., LL.B.

A recent Court of Appeal decision concerning the validity of a lease, while affecting only a few landlord/tenant relationships, may have serious consequences for those few. The property in the lease in question was part of an unsubdivided larger parcel of the landlord's land. A building was erected on the part.

After a series of disputes which led to the landlord's refusal to renew the lease, the tenant brought an action to force the landlord to do so. The landlord's defense was that the lease was illegal because it was in breach of section 73 of the Land Title Act.

Section 73 states that except in compliance with the Land Title Act, no person shall subdivide property into smaller parcels for the purpose of ... leasing it for a term exceeding three years. The term of the lease was 51 months. The Land Title Act deines subdivision to mean a division of land into two or more parcels by plan, apt descriptive words, or otherwise. By this definition the landlord's property was subdivided when the parties signed the lease. Since none of the governmental consents that may be required for a subdivision were obtained, the subdivision did not comply with the Land Title Act.

The reason why section 73 may only affect a few leases is because it does not apply to a lease of a building, or part of a building.

The Court of Appeal agreed that the lease was illegal because it was made in breach of the public policy underlying the prohibition contained in section 73. That public policy is the regulation of land development and its use in the public interest, which can only be protected if municipalities and other governmental authorities responsible for zoning and related public interests retain control of the process of subdivision.

Italso decided not only that an illegal lease cannot create a leasehold interest in the land, but that the parties could not enforce the contractual rights and obligations contained in the lease. (For example, the landlord's right to receive rent, and the tenant's right to possession or renewal.)

A significant fact upon which the Court of Appeal based its decision, was that neither party was aware of the requirements of section 73. If the landlord had such knowledge and deliberately broke the law, the court would have found it very difficult to allow the landlord to repudiate its obligation to renew the lease, and might have tried to find some way to support the tenant's rights.

The Law Society thought the case to be sufficiently important that it brought it to the attention of lawyers with the suggestion that they advise their clients, both landlords and tenants, of the need to review existing leases that may now prove to be unenforceable.

One example of illegal leases may be found in the purchase of recreational property by a group of individuals in the name of a company of which they are the shareholders. Subdivision in the customary manner is unobtainable. The company then leases to each individual an area of land which each is entitled to occupy exclusively.

Or, a one-story, non-strata titled warehouse building is divided into separate units, each of which is then leased together with the land in front of each tenant's unit. Each tenant has the exclusive right to the use of this land. This appears to fall within the section 73 prohibition. If the tenant does not have exclusive use, but only a right to access and parking, the lease would be outside the section 73 prohibition.

What is the validity of a lease in which, as is often the case, the tenant is given the exclusive right to a number of parking spaces? Does this mean that if the spaces are within the building, the, lease is valid, but if they are outside, the lease is illegal?

Since this would be an absurd result the courts may accept one or two arguments in support of the validity of the lease. The first is that the general public interest underlying section 73 is not harmed by inclusion in a lease of exclusive parking rights in favour of a tenant. The second argument would be that since section 73 does not apply to a lease of a building, or part of a building, the granting of exclusive parking rights is too minor and ancillary to the main purpose of the lease to be a breach of section 73.

Factors a court may have to consider will be the size and use of the land in relation to the building. If Supreme Court judges concluded that they have to follow strictly the decision of the Court of Appeal, then an amendment to section 73 which has been part of the Land Title Act since 1915, will be needed to provide a balance in favour of individual rights.1

1.

Intemational Paper Industries Ltd. v. Top Line Industries Inc., B.C.C.A., Reasons for judgment, May 21, 1996.

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