Please read the disclaimer before perusing the following article.
written 1997, published in Beef in B.C. September/October 97
On May 21, 1996, the British Columbia Court of Appeal issued a decision which has a great impact on leases of agricultural property.
The decision renders a lease over three years in length, and covering a part only of a single legal description, VOID AND OF NO EFFECT right from the start of the lease—unless the portion of the legal description is defined by a surveyor’s plan as required under the Land Title Act. The case is called International Paper Industries Ltd. v. Top Line Industries Inc.
International Paper Industries Ltd. leased part of a piece of property from Top Line Industries, including a building located on the part of the property covered by the lease.
The whole property was a single legal description, and the lease covered only a part of it. The parties attached a sketch plan of the property showing the part leased by Top Line to International Paper.
Landlord and tenant then started fighting with each other and litigated various issues concerning the lease, but at no time did either party or their lawyers question the validity of the lease.
Finally the parties got into a dispute over the renewal of the lease, and the fundamental validity of the lease was questioned in court. The lease was challenged because it failed to comply with section 73 of the Land Title Act. That legislation says that “Except in compliance with this Part [of the Act], no person shall subdivide land into smaller parcels than those of which he is the owner for the purpose of … leasing it…for life or for a term of three years.” The Act goes on to say that any such document cannot be registered.
But the Court of Appeal went further. It decided that the lease itself was void “ab initio”, meaning “from the start”, and conferred no rights at all. So there was never a tenancy, there was no right to renewal, there was no enforceable agreement—unless a subdivision plan requirements of the Act were met, which they clearly were not in the Topline case.
The Land Title Act requires that a subdivision for the purpose of leasing go through exactly the same approval process as a subdivision for the purpose of creating two or more new parcels from the original. That includes Land Commission approval for land within the ALR, Approving Officer approval (the Approving Officer is part of the Ministry of Highways or a municipality, depending on the location of the land), and a survey plan created by a B.C. Licensed Surveyor. There is no requirement on the Approving Officer to approve the application to subdivide; indeed, the Approving Officer can reject the application completely if he or she believes it to be contrary to the public interest.
The Court of Appeal’s reasoning was that the Land Title Act provision was there to protect municipal control over the subdivision of land, and that protecting this objective was more important than providing any protection to the rights of the landlord or tenant under the lease. Therefore the lease was void--of no effect whatsoever--from its start.
In a recent Supreme Court decision in R & R Ginseng Enterprises Ltd. and Layton Bryson Outfitting and Trailriding Ltd. and Peter Minten, Supreme Court Justice Bruce Grist questioned whether a judge has a discretion whether or not to declare the lease void, depending on the circumstances of the case. The case concerned a lease for ginseng growing purposes. Judge Grist said:
In International Paper the court expressed some regret in holding the agreement to be unenforceable but found it necessary to support the public policy objectives of s. 73. When argued at their strongest, the agreements in this case in themselves are likely less of a threat to public policy than the lease considered by the Court of Appeal. The thirteen acre portion of the legal title was put to a similar use to that already adopted for the land and does not require a permanent structure or change in the quality of the land such that there would be difficulty in returning to its original use. The length of term is what is required for the crop cycle and not so long as to amount to an unreasonable alienation of the parcel. Further, compliance with the statute by way of subdivision to accommodate such an agricultural lease would be so cumbersome and unrealistic as to preclude this sort of agricultural lease as a useful vehicle. … This raises the question as to whether there is any discretion in declaring such a contract unenforceable as a result of breach of the statutory condition.”
Judge Grist went on to find that there is no judicial discretion, given the Topline case.
As anyone who has ever tried to subdivide a parcel of land can attest, the approval requirements are onerous. They are not only expensive, but also take a lengthy period of time to complete. As well, there will be cases where application to subdivide for the purpose of leasing is turned down.
What, if any, alternatives exist to the subdivision approval requirements?
First, the Topline case is restricted to leases for over three years. But all that means is that there is no case which decides the validity of a lease of an unsubdivided part of a legal description, which is for three years or less.
Second, there are circumstances where the interest being granted by the land owner to the prospective “tenant” does not really require a lease. A lease grants a right of exclusive occupancy of land for the term of the lease (as in a grazing lease from the Crown). A licence (just like a grazing licence) grants a right of use which does not give exclusive possession to the “tenant”. Sometimes what the “tenant” wants adds up to a licence rather than a lease. In those situations, a licence to use a part of a legal description in a certain way MIGHT be valid when a lease clearly will not be.
As well, there may be situations where it appropriate to lease the whole parcel to the tenant and to grant back to the land owner certain rights of use over part of the title. But if a judge decides that the substance of the transaction is a lease of an unsubdivided part of a single title, then Topline requires the judge to declare the lease void.
In a situation where the parties have been relying on the provisions of a lease, only to have it declared void, the landlord or tenant may be able to make claims against each other based on rights not found in the lease. One possibility, for example, is an action in “quantum meruit’. That is a claim for the value of services provided. Another possibility is a claim for “unjust enrichment”. So there may be remedies outside the lease itself.
All in all, Topline has greatly increased the complexity and expense of leasing unsubdivided land in British Columbia.