A certificate of pending litigation (CPL) is a tool used to put others on notice that a property is the subject of ongoing litigation. With a CPL registered on title, others will be prohibited from dealing with the property by selling it, registering a mortgage, or refinancing. However, a recent decision showed that an Ontario court was reluctant to grant a purchaser with the right to register a CPL on the title of the property he was set to purchase later that same day.
Purchaser Seeks to Block Sale Until Provided With Warranty
The purchaser and sellers entered into an Agreement of Purchase and Sale (APS) for a residential home in Newmarket. The sellers were a father and two sons, who had renovated the existing home as well as constructed additions to the home themselves with the intention that the father would eventually reside in the home. The nature of the type or extent of the renovation and construction work was not made clear to the court. In July of 2018, the Tarion Warranty Corporation (“Tarion”) issued a letter to the owners that the house met the requirements for an “owner-built home”.
On January 5, 2020, the parties entered into an APS for the sale of the home. According to the terms, the closing was to take place “no later than 6:00 pm on February 5, 2020”. The plaintiff had the home inspected in mid-January and visited the home again on January 26th. He had identified some issues with the construction that he had requested to be addressed prior to closing. This led him and his wife to contemplate the idea of a warranty with respect to the construction to give them protection once they became the owners of the property.
On January 31st, the plaintiff’s lawyer inquired with the seller’s lawyer as to whether the property was warranted by Tarion. Later that day, they received a reply stating that the property had not been registered under the warranty program as the home had originally been intended for one of the sellers. The response also stated that the nature of the work had been a renovation rather than new construction and that the structure of the home had not been changed.
The day before closing, the sellers confirmed that no Tarion warranty would be provided and that no HST would be collected on the purchase (as would have been the case with a newly constructed home). The next day, the closing day, the plaintiff reached out to Tarion directly and inquired as to whether the house qualified for warranty protection. Tarion provided the following response:
If the home was never occupied then it should have been enrolled and the builder should have been registered with Tarion. A home is not required to be enrolled to be covered under the warranty but the determination has to be made by Tarion that the home is eligible for coverage. That usually involves investigation and that is always more than one day. From the information you have provided it would seem likely that the home is entitled to warranty coverage but I cannot confirm that to you right now. I will get back to you with more information as soon as possible.
The plaintiff then brought an emergency ex parte motion for leave to register a CPL against the property, halting the sale until the warranty issue was resolved.
What are the Requirements for a Certificate of Pending Litigation?
As set out in the decision Perruzza v. Spatone, 2010 ONSC 841, the requirements are as follows:
- There must be a triable issue as to the interest in the land (note that it is not required that the plaintiff demonstrate a likelihood of success)
- The party opposing the CPL is required to establish that there is no triable issue with respect to the interest in the land
- A court must look at all relevant factors and use its discretion in determining whether a CPL should be granted. These factors can include:
- whether the property is unique
- the ease or difficulty in calculating damages
- the intent of the parties in acquiring the land
- the harm to each party if the CPL is granted
In considering the factors, the court denied the plaintiff’s request for a CPL in the case at hand. The court considered the following in reaching this decision:
- The APS did not provide for a Tarion warranty and no representation was made with respect to the construction being Tarion-warranted. The plaintiff appeared to make this demand in the final hours.
- While the plaintiff claimed to be “ready, willing and able” to close, the court found that he was unwilling unless his last-minute condition was met.
- The plaintiff presented no evidence that the sellers would be unwilling to correct any defects after the date of closing, nor that they had insufficient financial assets should they be required to satisfy a future judgment.
- The plaintiff brought the motion ex parte on the date of closing and had made no attempt to try to extend the closing first.
- The potential harm to the defendants (sellers) should a CPL be granted outweighed any potential harm to the plaintiff.
At Baker & Company in Toronto, our real estate lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential. We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100or contact us online for a consultation.