Jun 01, 2007

Legislature Trumps the Courts #408


By Edward L. Wilson
Lawson Lundell LLP

A property owner with surplus lands may be tempted to lease a portion of a parcel of land to gain additional revenue. Farmers lease portions of their lands, as do owners of industrial and commercial properties, often with the assistance of a REALTOR®. However, in many cases, such leases are illegal and contrary to s. 73 of the Land Title Act pursuant to a 1996 BC Court of Appeal decision. 1 Section 73 provides that no one shall subdivide land into smaller parcels by way of leasing it for a term exceeding three years without complying with the local government’s subdivision requirements.2

The Court of Appeal held that a lease in contravention of s. 73 was void and unenforceable. Before that decision, most lawyers believed leases in contravention of s. 73 were still enforceable as between the parties, but would not bind subsequent purchasers and mortgagees. It was widely believed that, while such a lease didn’t create an interest in land, it did create personal rights and obligations between a landlord and tenant.3

The decision
International Paper Industries Ltd. (IPI) leased a portion of a parcel of land from Top Line Industries Inc. (TLI) for a 51-month term with a further right of renewal. A dispute arose when IPI exercised its renewal option and TLI refused to renew the lease, arguing the lease was illegal because it contravened s. 73. The trial judge held that the rights and obligations created by the lease were binding as between the parties, even though the lease was contrary to s. 73. 

The Court of Appeal held that s. 73 was intended to ensure that municipal authorities retain control over subdivision as a means of controlling land use and development. The court held that the lease in question contravened s. 73, that such contravention precluded the tenant from enforcing any personal or proprietary rights pursuant to the lease, and that the lease was illegal and void from the start. Either the tenant or the landlord was free to walk away from the arrangement.

Bill 35
The Top Line decision was considered controversial and many sources called on the government to amend the Land Title Act to make long-term leases of part of a parcel of land enforceable as between the parties.4 The government answered that call by introducing Bill 35 - Miscellaneous Statutes Amendment Act (No. 2), 2007, which received Second Reading in the legislature on May 14, 2007. With Royal Assent and proclamation expected*, leases that violate s. 73 based on the Top Line decision will be valid as between the parties, returning the status of the law as it existed before that 1996 decision. A court may find that all REALTORS® (and particularly commercial REALTORS®) should have knowledge of s. 73 and the Top Line case. REALTORS® listing properties where the owner has leased a portion of the property to a third party, or brokering such a lease negotiation, should advise the parties of the issue and suggest they seek legal advice.

 1.International Paper Industries Ltd. v. Top Line Industries Inc., BCCA, Vancouver Registry, May 21, 1996 (1996).
 2.Section 73 does include exceptions for leases of all or part of a building or leases having a term (including all renewals) of less than three years.
 3.Nesrallah v. Pagonis. (1987), 47 RPR 216; and Anglican Synod of the Dioceses of British Columbia v. Tapanainen (1990), 21 ACWS (3d) 277.
 4.Report on Leases and Unsubdivided Land and the Top Line Case. BC Law Institute, Report No. 38, July 2005 (available at www.bcli.org).

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