RIGHT OF PROPERTY OWNER TO PRESERVE PANORAMIC VIEW

 

It happens that an important consideration for purchasing a property is the exceptional view that it has of a lake, river, seashore, valley or downtown. Does an owner have a recourse if a neighbour or future acquirer of the neighbour's property decides to build a new construction or increase the height of an existing one that substantially blocks a panoramic view? This issue was litigated in Raymond v. Goldberg et al. 2008 QCCS 5925.

 

Raymond acquired her property in 1999 and had extraordinary views of downtown Montreal and the St. Lawrence river as well as unobstructed natural light. Goldberg's property was situated in front of but at a lower elevation that that of Raymond.

 

The problem occurred when Goldberg decided to add a third story to his house which would partially, but not completely, obstruct Raymond's views. Goldberg applied to the City of Westmount for a building permit which was granted by city council after a thorough review by the Planning Advisory Committee and the Inspections department determined that the proposed renovations were in conformity with the City's by-laws.

 

Raymond applied for an injunction to prevent Goldberg from carrying out the renovations, alleging that she would incur a substantial loss of value to her property; loss of privacy; reduced lighting; and loss of the panoramic view.

 

Goldberg replied that his project was submitted to and approved by the City of Westmount after a rigorous process that confirmed that it was in conformity with municipal regulations. Consequently, he was within his rights to carry out the construction and that even if Raymond's view would as a result be adversely affected, her view was not protected by law. The City of Westmount was also a party to the case and supported Goldberg's position.

 

What are the legal principles that should apply and resolve the issue?

 

·      Goldberg has the right to use and enjoy his property to the fullest extent subject to the limits of the law. His title to property was not limited by any servitude of non-construction in favour of Raymond or her property.

·      The construction must respect the applicable laws and regulations, including zoning rules.

·      Goldberg must respect the limits of Article 976 of the Quebec Civil Code which requires neighbours to accept normal inconveniences (and the corollary, not to impose unusual or exceptional inconveniences or nuisances).

·      Goldberg must at all times, act in good faith.

 

The Court noted that Goldberg did not contravene any law, regulation or contractual obligation and acted in good faith. 

Goldberg took necessary precautions to limit inconvenience and his project was "blessed" by the City after a rigorous and legitimate review process. He acted as a responsible owner, did not pollute, did not significantly deprive Raymond of her privacy and only partially limited her panoramic view.

 

The Court noted that there was no objective test to determine when inconveniences are excessive. Each case must be decided on its particular set of facts. Raymond and Goldberg were both entitled to use and enjoy their properties. Based on the facts of the case, the Court was not convinced that Goldberg's construction project would have resulted in an excessive inconvenience for Raymond. An inconvenience yes, but one that she was required to put up with.

 

 

CONTESTING MORTGAGE FORECLOSURE PROCEEDINGS (TAKING IN PAYMENT)

In a recent case, the Court had to decide whether a borrower raised valid grounds to contest the foreclosure proceedings brought by a private lender (Prêts Relais Capital Inc. v. Pierre Bonneau et al., 2020 QCCS 4055).

 

The borrower's grounds of contestation consisted essentially that the interest charged and the fees for opening and analysing the loan application were exaggerated and illegally claimed. The lender claimed the aggregate amount of $360,563.12 including principal, interest, penalties and costs. The borrower acknowledged owing $236,961.

 

In addition to the principal amount of the loan, the lender claimed the following:

·      interest at 12% per annum, plus Interest on any unpaid interest at the annual rate of 32%.

·      collection costs including the lender's legal fees.

·      liquidated damages in the event of default in the amount of 10% of the amount in default.

·      late payment and file closing fees

 

The borrower did not dispute that he was in default, only the total amount of the claim. Although the law provides that the default may be cured at any time before judgment is rendered, the borrower did not attempt to do so, nor did he deposit any amount with the Court, even the amount that he acknowledged owing.

 

Article 2332 of the Quebec Civil Code grants authority to the Court to reduce the obligations of the borrower in a contract of loan taking into account the circumstances, when there is a significant difference in the bargaining power of the parties which leads to exploitation. The Court may also reduce a penalty clause which it considers to be abusive.

 

In the present case, the Court considered the claim for legal fees to be contrary to Article 2762 CCQ and therefore illegal. It considered that there was insufficient evidence that the interest rate and costs to open the file and review the loan application were usurious.  To succeed, the borrower would have had to produce an analysis by an actuary or accountant to establish the real underlying interest rate, which he did not do.

 

The Court did consider the 10% penalty, 32% interest rate on unpaid interest and the fees for reimbursement after default and for closing the file to be exaggerated and would have reduced them. However, no useful purpose would have been served by reducing the amount of the lender's claim since, by choosing the "taking in payment" recourse instead of proceeding by judicial sale, the lender took title to the mortgaged property in complete payment of the debt, whatever the correct amount, without further recourse against the borrower.

SHORTFALL OF LIVING SPACE IN NEW CONDO

What are the rights of a purchaser when the living area of the condo delivered by a promoter is considerably smaller than advertised? This issue was discussed in Duval v. Habitats District Griffin Îlot 10 Inc., 2018 QCCS 4703 (confirmed by the Court of Appeal 2020 QCCA 1614).

 

Jean was living in the suburbs in the family home encompassing  2000 sq. ft. of habitable space, excluding the basement. He wanted to move closer to downtown and estimated that he would require  a condo with @ 1400-1500 sq. ft. He signed a preliminary contract with Habitats to purchase a new condo advertised as comprising 1321 sq. ft. plus a loggia for a total of 1408 sq. ft.

 

The preliminary contract included a note that the dimensions were approximate and subject to modification without prior notice. The note also stated that the gross square footage was calculated by including 1/2 of the interior walls as well as the exterior and corridor walls.

 

Shortly before the closing, the certificate of location was delivered to Jean showing a living area of only 1174 sq. ft. namely, 12% less than what he expected. According to Jean, his options are very limited since the preliminary contract did not allow him to withhold any amount from the purchase price. Moreover, he had already advanced between $50,000 to $60,000 for high end materials so that the interior finishing of the new condo would meet his expectations of superior quality. In the circumstances, he proceeded with the closing and took possession of his condo.

 

Jean claimed a reduction in the purchase price to reflect the reduction in the living space of the condo compared to what he expected and declared that he was promised. Habitats argued that by closing without reserving his rights, Jean implicitly renounced any claim that he may have had. Subsidiarily, Habitats states that the dimensions of the condo were gross and only approximate and that it never made any representations or promises regarding the dimension of the livable area.

 

The Court found that according to the evidence, Habitats led Jean to believe that the livable area of the condo would be 1318 sq. ft. and that it was an important consideration for Jean when he agreed to purchase the condo. This constituted a false representation which was actionable both pursuant to Articles 1401 and ff. of the Quebec Civil Code as well as Articles 216 and ff. of the Consumer Protection Act.

 

The Court also found that Jean never renounced his rights by closing without reserve since the cancellation of the contract was not a viable option for the reasons hereinabove mentioned. In the circumstances, the Court granted Jean a reduction of the purchase price in the amount of $73,000.

 

Article 1720 of the Quebec Civil Code requires the seller to deliver the area or quantity specified in the contract unless it is obvious that the property was sold without regard to such factors. In this case, the Court concluded that the size of the habitable space was an important consideration for Jean. 

 

The restriction in the contract regarding the dimensions of the property did not prevail based upon the specific facts of this case namely, that according to the Court, Habitats provoked Jean into error by confusing gross area with net living space. Habitats would have been better served to consider the adage: the primary objective of good communication is not to be understood, but rather to avoid being misunderstood.

FORCE MAJEURE, COVID-19 PANDEMIC AND COMMERCIAL LEASES

 

The Covid-19 pandemic has given rise to rent disputes between landlords and tenants in commercial leases. An interesting illustration can be found in Hengyun International Investment Commerce Inc. v. 9368-7614 Quebec Inc., 2020 QCCS 2251, which is presently in appeal.

 

A commercial lease with a five-year term was entered into on 2017-11-03 for the operation of gym in the leased premises. The tenant was forced by government decree to close the gym on 2020-03-24 due to the Covid-19 pandemic. Tenant argued that its inability to operate and generate revenue was the result of force majeure and that it should therefore be relieved of its obligation to pay rent during the applicable period of the decree (March 24 to June 30, 2020).

 

The landlord did not agree that the effects of the decree constituted force majeure. It added that the tenant applied for and received a government emergency loan of $40,000 and cannot therefor properly argue that it was prevented from paying rent due to the pandemic. It appears that the tenant used the loan for purposes other than the payment of rent, such as payment of legal fees.

 

The Court sided with the tenant but for different reasons. Article 1470 of the Quebec Civil Code ("CCQ") defines force majeure as an unforeseeable and irresistible event. In the context of the pandemic, the Court was satisfied that the pandemic could not have been reasonably foreseen. The Court however did not agree with the tenant's "subjective" interpretation of irresistibility that the pandemic prevented it from paying the rent. 

 

It was the Court's view that the landlord was prevented by force majeure from fulfilling its fundamental obligation to provide the tenant with peaceable enjoyment of the premises. Although the tenant continued to have limited access to the premises to store its equipment, the lease provided that the premises could be used solely as a gym and this activity was prohibited by the decree. As a result, the Court concluded that the tenant did not have peaceable enjoyment of the premises during the applicable period.

 

Article 1694 CCQ provides a defence commonly referred to as the "exception to inexecution". When a party to a contract does not fulfill its obligation (e.g. provide peaceable enjoyment), it cannot exact from the other contractual party, its corelative obligation (the payment of rent).

 

Although in commercial leasing, the parties may diminish the extent of the landlord's obligation to provide peaceable enjoyment, they cannot exclude it altogether since to do so would fundamentally change the nature of the contract or neuter it altogether. Under the circumstances, the Court ordered the full reduction of rent for the applicable period.

 

Another decision was recently rendered in the context of the Companies' Creditors Arrangement Act ("CCAA") and provides a different perspective of the issue. Goupe Dynamite Inc. et al. v. Deloitte Restructuring Inc., 2021 QCCS 3.

 

Dynamite was forced to close stores pursuant to government decrees. It made an application pursuant to s. 11 of the CCAA which gives the Court discretion to make any order that it considers appropriate, subject to restrictions in the Act. One restriction provides that no order may be made that could preclude a supplier from obtaining immediate payment for the use of leased property. The issue to be decided by the Court was the meaning of “use of leased premises”.

 

Dynamite argued that it operates retail stores for two broad purposes:

·      provide a personal shopping experience in which human interaction is an essential feature;

·      marketing through passing foot traffic which nurtures unaided and spontaneous brand awareness.

 

As a result of the government decrees, Dynamite generates no revenue or brand awareness from closed stores. It asserts that buy online, pick-up orders are unappealing to its customers and represents only .5% of its overall sales. 

 

The landlord argues that as long as the lease has not been disclaimed, the tenant occupying the premises is using them within the meaning of the Act.

 

The Court sided with the landlord. It found that Dynamite intentionally declined to disclaim the leases because it chose the locations carefully and were important to its restructuring efforts. In making this decision, the Court found that Dynamite was asserting its right to sole possession of the premises and was sufficient to trigger the restriction in s. 11 and preclude the Court from preventing the landlord from claiming the immediate payment of rent. Where leased premises are occupied by a tenant and cannot be leased to anyone else, the landlord cannot be prevented  by the provisions of  the Act from demanding immediate payment of rent whether or not the tenant is actually carrying on business.

 

In both the Hengyun and Dynamite cases, the tenants were in possession of the leased premises but the applicable law and the outcomes were different. According to the Quebec Civil Code, the landlord in Hengyuncould not demand payment of rent during the applicable period covered by the government decree because the landlord could not provide peaceable enjoyment of the premises. In Dynamite, the landlord could demand payment of rent under the CCAA while the tenant remained in sole possession of the premises, despite the government decree. 

 

 

 

WHAT ARE THE LIMITS ON THE RIGHT OF A CO-OWNER TO RENT HIS CONDO?

The Quebec Charter of Rights and Freedoms guarantees the right to use and enjoy property as the owner sees fit, subject to the reasonable limitations imposed by the law. Considering that a condominium forms part of a community of co-owners, should the condo association be allowed to regulate such property rights and if so, to what extent?

With the advent of airbnb type rentals and investors who purchase one or more condos with the intention of renting them to third parties, the issue has become litigious.

The constituting act of a condominium, the declaration of co-ownership, is required by Article 1053 Civil Code of Quebec to define the “destination” of the property although in most cases, the definition is broad and ambiguous. The definition is important because Article 1063 CCQ states that each co-owner has the free use and enjoyment of his condo on the condition that he respects the by-laws; does not unduly interfere with the rights of others; and respects the destination of the property. The destination of the property can only be changed with the unanimous consent of the co-owners.

The leading court decision on this point is the Court of Appeal decision in Kilzi -vs- Le Syndicat des Co-Proprietaires du 10,400 Boul. L’Acadie, 2001 Canlii 10061.

In 1982, Chateau Port-Royal, which was built in 1977-78, was converted from a residential apartment building comprising 132 apartments to condominiums. Kilzi purchased 8 condos between 1990 and 1993, of which one was occupied personally by Kilizi and the others were rented out to third parties for varying durations.

Prior the purchase by Kilzi, a certain number of units were rented but the activities of Kilzi greatly increased the proportion of rented units.

Several co-owners were unhappy with Kilzi’s rental activities, which they perceived as a threat to the tranquility of their properties and their market values.

In 1994, the condo association adopted a new by-law to regulate rentals, the relevant details of which are as summarized follows:

Sections 2 & 3) Rentals of less than 12 months are deemed to be a commercial activity and are therefore prohibited.

S. 4) Exceptionally and with the authorization of the condo board, it is permitted to rent a unit for a duration of less than 12 months if such rental intervenes between two long term rentals.

S. 5) It is prohibited for a company to rent a condo belonging to it except to a director, officer or shareholder.

6) No owner of more than 3 units can rent more than 3 units except for a long duration and only to members of his own family.

Kilzi argued that the declaration of co-ownership did not restrict the rental of units and in fact, recognized the right to do so. When he acquired his 8 units, there were no restrictions regarding the rental of units. The condo association could not therefore, deprive Kilzi of his rights that derived from the declaration of co-ownership and his purchase agreements.

According to the condo association, the purchase and rental of units by Kilzi constituted a commercial undertaking that was prohibited by the declaration of co-ownership. The by-laws were adopted in good faith and were consistent with the “destination” of the property.

The Court of Appeal agreed that the activity carried on by Kilizi i.e. the rental of 7 of his 8 units constituted a commercial activity. It also concluded that what the declaration of co-ownership prohibited was commercial activity inside each unit. Consequently, the rental of units to be used for residential purposes only was not prohibited.

The solution to the litigation revolved around the definition and application of the destination of the property.

The destination of the property is akin to its personality. It is the sum of several factors that are taken together to define it including:

·      The type of property that the collectivity of co-owners desires to have.

·      The quality of construction and the materials used.

·      The harmony of the whole of the property.

·      The location of the property such as whether or not it is in a luxurious neighbourhood, near a body of water or a highway.

·      The social standing of the co-owners.

The by-laws in question cover 3 situations:

·      Rental by a company (S. 5)

·      Ownership of more than 3 units (S. 6)

·      Short term rentals (Sections 3 & 4)

Because S. 5 completely prohibited rentals in the circumstances instead of merely regulating it, the Court of Appeal declared it to be invalid. It decided the same for S. 6.

Regarding the prohibition against short-term rentals, the Court of Appeal held Sections 3 & 4 to be valid. Witnesses at the trial described the characteristics and environment of the property as being calm, tranquil, absence of noisy activities, high level of security, the entourage, the size of the units and their relatively new physical condition.

The Court of Appeal deferred to the majority of co-owners, a certain discretion with respect to measures to be selected to ensure the respect of the destination of the property.

Even with the guidance of the Court of Appeal, the definition and application of the destination of a property remains difficult, if not arbitrary. It recalls the words of United States Supreme Court Justice Potter Stewart in a 1964 decision as to whether a motion picture was obscene.

I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it…

It remains to be seen how far the courts will allow a condo association to go to limit individual property rights in the interests of the collectivity.

WHEN THE OWNER OF A CONSTRUCTION AND THE LAND ARE NOT THE SAME

In Quebec law, this is called the right of superficies and it is governed by Articles 1110 and ff. of the Quebec Civil Code.

It can be created by an express or tacit agreement, or renunciation in any right to the construction by the land owner, but the ownership rights to the construction do not have to be registered in the land register, which can cause problems should the owner of the land decide to sell to a third party, as is nicely illustrated in the case of Harmegnies -vs- Belzile-Desjardins et al. 2019 QCCS 382.

Plaintiff acquired his property in 1986 and the Defendant acquired an adjacent property in 2009 from Paré. In 2007, Plaintiff had an architect prepare plans for an extension of his residence above the car shelter situated between his property and that of Paré. The architect's plans provided that the roof of the extension would be supported by Paré's roof and thereby encroach on the latter's property. To obtain a construction permit from the municipality, Plaintiff needed Paré's consent. Plaintiff alleges that he obtained Paré's consent and the construction permit, which expressly referred to the encroachment, was issued.

Two years later, Paré sells his property to the Defendant. Following an unrelated dispute between the neighbours, Defendant retains a construction company to demolish the encroaching construction to which the Plaintiff responds with an application for an injunction to block the demolition.

Plaintiff does not deny that his extension encroaches upon Defendant's property but argues that it is nevertheless legal because of Paré's authorization. The fact that the deed of sale between Paré and the Defendant made no mention of the encroachment authorization does not affect Plaintiff's rights.

Defendant argues that not only was there no mention of the encroachment in the deed of sale, but the certificate of location by the surveyor expressly affirms the inexistence of any encroachment. The Defendant argues that the authorisation to encroach is not valid since it was never disclosed to Defendant or registered in the land register. Alternatively, Defendant argues that Article 992 should apply i.e. where an owner has in good faith built beyond the limits of his land and the construction causes serious injury, the owner of the land encroached upon may compel the builder to remove the offending construction. 

The Court found in favour of Plaintiff. The right of superficies is a quasi or limited  right of ownership that was acquired with the explicit or tacit consent of Paré. Indeed, Paré never asserted any right to be indemnified for the consequences of the construction on his property nor attempted to have the construction removed. The Court also found that the encroachment was minimal or modest and did not reach the level of "serious injury" prescribed by Article 992. More particularly, although the case law considers an encroachment of 10% or greater of the total land area to be "serious", the encroachment in the present case was assessed at only between 1.6% and 3.45%. This together with the absence of bad faith on the part of Plaintiff was a bar to the application of Article 992.

And what of the argument that the right of superficies was never registered and therefore, could not be legally set up against subsequent acquirers? The Court rejected this argument by concluding that the Defendant could have no greater rights that Paré, from whom he acquired title. Since the right of superficies could be validly set up against Paré, the Defendant could not interfere with Plaintiff's rights although he could pursue Paré to obtain a reduction in the sales price or even the cancellation of the sale. 

Although the general rule is that all transfers of title must be registered in order to be opposable to third parties, there is an exception when such transfers are granted or acquired tacitly or passively i.e. acquisitive prescription; right of superficies. To require registration in all such circumstances would effectively neutralize the legal validity of such vehicles for acquiring or extinguishing real rights.

This case reminds us that title searches are not perfect and there are cracks through which exceptions may get through. In retrospect, Plaintiff and Paré should have registered a Summary in recognition of the creation of the right of superficies, which would have avoided surprises and misunderstandings, and precluded costly litigation.

ARE RESTRICTIVE COVENANTS (NON-COMPETITION CLAUSES) BETWEEN NEIGHBOURING PROPERTIES LEGALLY ENFORCEABLE?

Two neighbouring property owners  (Provigo & El-Ad) are bound by a contract which provides that El-Ad will not allow the sale of food on its shopping center premises for as long as Provigo operates a food supermarket on its neighbouring property.

The Quebec Superior Court decided that the contract was not legally enforceable for the following reasons (Complexe Commercial De L'Île Inc. v. Provigo Distribution Inc. et al., 2018 QCCS 5284).

The validity of such restrictive covenants is determined by well settled principles established over time by case law:

1.     Undertakings in restraint of trade are generally against public order;

2.     There may, within reasonable limits, be contractual restrictions on freedom to conduct a specified commercial activity;

3.     The validity of such restrictions is dependent on their being reasonable, particularly with respect to the activity that is sought to restrict, the duration of the restriction, and the applicable territory;

4.     The restrictions must be necessary for the reasonable protection of the legitimate interests of the party in whose favour they are granted.

Relevant Facts:

For many years, Provigo was a tenant in the shopping center owned by El-Ad's predecessor. A clause in the lease granted Provigo exclusivity in the shopping center  for the operation of a food supermarket.

In 1993, Provigo purchased a vacant property across the road from the shopping center from El-Ad's predecessor. 

In 2004, Provigo sold part of the vacant property to El Ad and kept the remainder for itself in order to build a food supermarket. 

El Ad agreed not to operate a food supermarket in the shopping center or on the purchased land.

El-Ad and Provigo agreed to require from any future purchaser of their properties a written undertaking to respect the restrictive covenant.

The parties agreed to register real and personal servitudes  (easements) on their properties to reflect their undertakings.

Provigo built a supermarket on the retained land. 

El-Ad sold the shopping center to CCI who expressly agreed to be bound by the restrictive covenant. Nevertheless, CCI argues that the restrictive covenant is null and is not legally enforceable.

The Court recognized that the public interest lies in freedom of commerce and not in the restriction of commercial activities. Consequently, the legal burden will rest with the party seeking to enforce a restrictive covenant to show that the restriction is limited to what is necessary to protect its legitimate commercial interest.

In the present case, the restrictive covenant had no fixed term and continued at Provigo's sole discretion. The Court concluded therefore that the restrictive covenant was subject to an indeterminate term which could be perpetual, thereby offending public order.

A contractual undertaking that offends public order is not legally enforceable, notwithstanding that CCI expressly undertook to be bound by it. There are legal limits to what one may freely consent to in a contract.

Although the parties registered real and personal servitudes on the property, this had no legal effect since it is recognized that non-competition clauses cannot be registered as servitudes. A prohibition to carry on a certain type of activity does not benefit the dominant property, which is a fundamental precept of a servitude. Rather than benefitting the dominant property, the prohibition confers an advantage on the owner of the dominant property for as long as he operates the activity that benefits from restricted competition. Should the activity change, such as by the owner moving the activity to a different property, the prohibition would be without purpose or meaning.

Finally, the Court distinguished the restrictive covenant in an agreement between two property owners from an exclusivity clause often found in commercial leases. The primordial difference is that a commercial lease has a fixed term or if the term is indeterminate, either party could cancel upon giving reasonable notice. An exclusivity clause in a lease cannot be for a perpetual duration and consequently, will not offend the basic principles referred to above.