Mortgage Broker

MortgageBroker mbabc.ca winter 2015 | 39 legalease What if a person comes to you and wants to mortgage an unregistered interest in an unsubdivided portion of a larger parcel of land? Perhaps the land cannot be subdivided for legal reasons (e.g., it is part of the Agricultural Land Reserve) or it does not meet the servicing requirements for subdivision (e.g., sewage disposal capacity). Perhaps the owner simply wants to avoid the expense of a subdivision. Perhaps the Okanagan farmer wants to retire to the farmhouse and let someone else take over the business of working the informally subdivided fields. ere may be many reasons why you would not want to become involved in the complexities of such a mortgage, but does the person have an interest capable of being mortgaged? The legislation Except in compliance with the Land Title Act (LTA), land is not to be subdivided into parcels smaller than those that the person owns if it is done for the purpose of: • Transferring it, • Leasing it for a term of more than three years; or • Mortgaging it in a way which would give the lender under any circumstances the right to demand the transfer of the mortgaged smaller parcel. However if parties make a contract which violates this requirement, the contract is still enforceable between the contracting parties. The leading case e Court of Appeal looked at this legislation in Idle-O Apartments Inc. v. Charlyn Investments Ltd., 2014 BCCA 451. Idle-O Apartments Inc. (the "Owner") granted a 998-year lease to Charlyn Investments Ltd. (the "Tenant") for an unsubdivided portion of recreational land for the specified purpose of recreational use by the Tenant's directors and their children. e Tenant subsequently made various improvements to the land. e problem was that the lease violated the LTA requirements for a valid subdivision. e Owner sued to have the lease found invalid and to have sole possession of the land. e Tenant sought to remain on the land on various bases, including proprietary estoppel. To prove proprietary estoppel, you must prove: • e assurance or representation, shown by the conduct of the Owner, that the Tenant had a right in the land; and • at the Tenant relied on the assurance or representation to his or her detriment and it would be unconscionable for the owner to go back on it. In this case, the Tenant was successful in proving these two points. Where there has been propriety estoppel, the court will generally do the least possible to give the wronged party what they were promised and expected. In this case, the court found that it was appropriate to give effect, to a certain degree, to the parties' expectation the Tenant would remain in occupation of the land for many years. e court also found that the informal subdivision created sewage capacity issues that would have been addressed in a proper subdivision application. Taking this into account, the court ordered: • A "replacement lease" on the same terms as the original; • at the lease would be enforceable only between the parties; • e lease would cease on the death of all current directors and their children. Conclusion Is there an interest that can be mortgaged in an unsubdivided portion of a larger parcel of land? Yes, but there are a number of obstacles that can make it a minefield to navigate. • Mortgaging unsubdivided land Ray Basi Director of Policy & Education raybasi@mbabc.ca Consider the potential challenges when you gauge whether a person has an interest capable of being mortgaged

• Cover