B.C. Law Institute Consultation Paper on Section 29(2) of the Land Title Act

In November 2009, the British Columbia Law Institute published its “Consultation Paper on Section 29(2) of the Land Title Act and Notice of Unregistered Interests.”

The purpose of section 29(2) of the Land Title Act is to protect purchasers of land, or others taking an interest in land such as lenders taking a mortgage, from claims that are not registered on the title. The idea is that if you buy land, you should be able to search the title to determine whether the seller can give you clear title. If there is nothing registered against the title, you don’t have to do historical searches to make sure that the seller has good title.

Section 29(2) is worded as follows:

(2) Except in the case of fraud in which he or she has participated, a person contracting or dealing with or taking or proposing to take from a registered owner
(a) a transfer of land, or
(b) a charge on land, or a transfer or assignment or subcharge of the charge,
is not, despite a rule of law or equity to the contrary, affected by a notice, express, implied, or constructive, of an unregistered interest affecting the land or charge other than
(c) an interest, the registration of which is pending,
(d) a lease or agreement for lease for a period not exceeding 3 years if there is actual occupation under the lease or agreement, or
(e) the title of a person against which the indefeasible title is void under section 23 (4).

The benefit of this section is that it makes it relatively easy and inexpensive to buy and sell or otherwise deal with land, and protects purchasers from claims they might not know about.

But if applied literally, this section can also operate unfairly. For example, suppose you have a small business in a mall. You have a lease for five years, with a five year renewal option, but you have not registered it in the Land Title Office. (Although it is a good idea to register a lease longer than three years, many tenants do not, and landlords may discourage registration.)

Your landlord sells the mall to a purchaser. The purchaser reviews all of the leases before signing the contract to buy the mall. Then, after the sale is completed, the purchaser realizing that it can get a higher rent from someone else refuses to recognize your lease. The purchaser did not sign it, and it was not registered against the title to the mall property. Section 29(2) would appear to allow the purchaser to rent the space to someone else, even though you may have spent years building your business in the mall.

In these kinds of circumstances, British Columbia courts have sometimes interpreted the word “fraud” in section 29(2) broadly to include transactions in which purchasers take title knowing of the unregistered interest (in our example, with knowledge of the lease.) This is quite different from criminal fraud, and is sometimes referred to as equitable fraud.

The British Columbia Law Institute consultation paper recommends changes to the Land Title Act to remedy uncertainty created by sometimes conflicting judicial interpretations of section 29(2), while maintaining fairness and honest dealing.

The Consultation Paper has a recommendation that a purchaser who knows of an unregistered interest before contracting to buy land, would take the land subject to the unregistered interest. But if the purchaser only finds out about the unregistered interest after the purchaser is contractually committed to buying the land, he will take title to the land on completion free from any unregistered interest.

Under the Consultation Paper recommendations, if instead of selling land, the owner makes a gift of the land to someone, then the beneficiary of the land will receive title subject to any unregistered interests of which the beneficiary was aware before the transfer of title.

The reason for distinguishing between purchasers for value and beneficiaries of gifts is that once the purchaser has contracted to buy land, the seller could sue the purchaser if the purchaser refused to complete the purchase. Therefore, it would be unfair if the purchaser took the title subject to unregistered interests of which he was not aware before making the contract. But the beneficiary of a gift of land can refuse to take the land at any time before the title is registered in the beneficiary's name.

See the Consultation Report for a more in depth analysis of this issue, and the detailed recommendations.