Managing the Law: Legal Aspects of Doing Business - Chapter 15 PDF

Managing the Law: The Legal Aspects of Doing Business Sixth Canadian Edition Chapter 15 Property in Land: Interests and Leases Copyright © 2023 Pea...

Managing the Law: The Legal Aspects of Doing Business Sixth Canadian Edition Chapter 15 Property in Land: Interests and Leases Copyright © 2023 Pearson Canada Inc. 15 Chapter 15 Overview Introduction Leases Interests in land – Duration – Estates in land – Assignments and sub- – Non-possessory leases interests in land – Commercial leases – Residential leases Copyright © 2023 Pearson Canada Inc. 15 INTRODUCTION Copyright © 2023 Pearson Canada Inc. 15 Introduction Real property includes – Land, things attached to land (e.g. fences and buildings), and things attached to them (fixtures) Extent of real property rights – Traditional view: giant carrot theory From centre of the earth to the heavens – Modern view: reasonable use From reasonable depth to reasonable height Copyright © 2023 Pearson Canada Inc. 15 INTERESTS IN LAND: ESTATES Copyright © 2023 Pearson Canada Inc. 15 Interests in Land Enforceable rights related to piece of land, including – Contract Rights Eg, you and I have a contract – Property Rights E.g., Selling a basketball court Estate interest: exclusive right to possession of real property for a period of time. 3 Varieties: – Fee simple estate – Life estate – Leasehold estate Copyright © 2023 Pearson Canada Inc. 15 Estates: Fee Simple Fee simple: largest bundle of rights one can own – E.g. may choose who gets it on your death – Generally unlimited use and abuse of property Limitations on rights of ownership – Tort obligations associated with land (chapter 5) E.g., Operating a chicken farm in a residential area – Government regulation, e.g. environmental and zoning laws – Expropriation: forced sale to government for public purpose Eg, road widening Copyright © 2023 Pearson Canada Inc. 15 Estates: Life Estate Right to exclusive possession during life of someone Relevant life is usually life of interest holder – Interest automatically terminates upon death Reversion to party with fee simple Remainder to the person selected by party with fee simple E.g., Inheritance from an Older Sister with 2 Siblings (1 disabled and 1 brother) Life estate holder liable for waste – Waste: acts that significantly affect value of land Life estates generally inappropriate in business (because it is impossible to predict one’s lives) Copyright © 2023 Pearson Canada Inc. 15 Estates: Leasehold Leasehold – Right to exclusively possess for specified period Period must be stated with certainty at outset Compare life estate: uncertain duration of life Copyright © 2023 Pearson Canada Inc. 15 Estate Types Compared Concept Summary 15.1 Fee Simple, Life Estate, and Lease Type of Estate Nature and Duration of Estate Fee simple right to exclusive possession during own life and right to dispose of property upon death Life estate right to exclusive possession during relevant life but no right to dispose of property upon death Lease right to exclusive possession during specified period Copyright © 2023 Pearson Canada Inc. 15 Estates: Shared Ownership Individual ownership: different parties own different pieces of land, and can exclude the other Shared ownership – Several parties own single piece of land – Each party has undivided interest No party can exclude others from property Each party entitled to share in general profits Copyright © 2023 Pearson Canada Inc. 15 Forms of Shared Ownership Two important types of shared ownership – Joint ownership (joint tenancy – exactly the same interest as a property) There is a right of survivorship – Co-ownership (two or more people share an undivided interest in a property) Different Interest – do not have to have exactly the same interest (unequal shares) No Survivorship – if one co-owner dies it will not automatically go to the co-owners. Joint ownership can change to co-ownership if – severance - occurs when a joint tenant deals with the property in a way that is inconsistent with joint ownership (e.g. new owner and the siblings) – partition - occurs when there is a division of either the property or its sale proceeds (who gets what) Copyright © 2023 Pearson Canada Inc. 15 Joint Ownership Definition: two or more parties have identical interests – If two joint tenants: necessarily ½ interest each – If four joint tenants: necessarily ¼ interest each – General profits split equally Right of survivorship – No right to dispose of interest on death – Interest automatically passes to remaining tenants Ultimate survivor acquires entire property Copyright © 2023 Pearson Canada Inc. 15 Co-Ownership Definition: two or more parties have undivided interests – parties need not have identical shares if three co-tenants: ½, ¼, ¼ interests possible – general profits split proportionately No right of survivorship – general right to dispose of interest on death – often preferred in business to allow family to receive business property on death Copyright © 2023 Pearson Canada Inc. 15 Severance and Partition Procedures for termination of shared ownership Severance of joint ownership – Joint tenant does any act inconsistent with identical interests E.g. sale of interest to outsider (not identical in time) Partition – Division of property or its sale proceeds – Applicable to joint tenancy or co-tenancy – Agreement between parties or court order (in case that both parties cannot amicably settle) Copyright © 2023 Pearson Canada Inc. 15 Condominiums Condominium: joint control – Combination of individual and shared ownership Individual ownership of single unit (e.g. apartment) Co-ownership of common areas (e.g. pool, gym) Operation of condominiums – Management by condominium corporation – Management financed by condominium fees Eg, create and enforce rules and regulation within the property Copyright © 2023 Pearson Canada Inc. 15 Shared Ownership Concept Summary 15.2 Shared Ownership Type of Shared Ownership Description Nature of Interests Effect upon Death Joint two or more each person’s right of survivorship: ownership people share interest must be deceased’s interest the same exactly the same as automatically passes undivided the other’s (eg to remaining joint interests in a ownership between tenant property two parties must be split 50–50) Co- two or more each person may no right of ownership people share have a different survivorship: some undivided interest (eg deceased’s interest undivided ownership between passes to person interests in a two parties may be named in will or to property split 70–30) next of kin Copyright © 2023 Pearson Canada Inc. 15 INTERESTS IN LAND: NON- POSSESSORY Copyright © 2023 Pearson Canada Inc. 15 Non-Possessory Interests Definition: interests in real property that do not include right to possession Types of non-possessory interests – Easements – Restrictive covenants – Mineral leases Copyright © 2023 Pearson Canada Inc. 15 Easements Definition: right to use neighbour’s land – Positive: allows one party to do something E.g., road right of way – Negative: prohibits one party from doing something Eg, construction of high building where sunlight is being blocked. Parties to easement (necessarily neighbours, but not necessarily next-door neighbours) Easement can run with the land if there is a – Dominant tenement: property that enjoys benefit – Servient tenement: property that bears burden Copyright © 2023 Pearson Canada Inc. 15 Creation of Easement An easement can be created in several ways: – Express: agreement between parties E.g., pre-condition / getting water in the well. – Implied: necessary for practical convenience E.g., road right of way – Prescription: land is used for long-term without permission E.g., no complaints about dumping garbage for decades – Statutory: public utilities (no dominant tenement) E.g., telephone wire through your property Easement versus. License – License: permission to act in a way that would not otherwise be allowed E.g., if a property is located near a stadium, one might be allowed to park the lawn during the game. Copyright © 2023 Pearson Canada Inc. 15 Restrictive Covenant Definition: promise limiting use of land – Requires dominant and servient tenements – Differs from easement in that Can only arise from an agreement Never allow a property owner to use neighbor's land Enforcement of restrictive covenant – General enforcement by successor of dominant (Positive) Eg., “I promise to repaint the building on my part of the land every two years” – Limited enforcement against successor of servient (Negative) Eg., ”I promise that I will not use my premises as and auto body shop” Copyright © 2023 Pearson Canada Inc. 15 Easements and R.C. Concept Summary 15.3 Easements and Restrictive Covenants Copyright © 2023 Pearson Canada Inc. 15 Enforcement of R.C. Figure 15.1 Enforcement of Restrictive Covenants Copyright © 2023 Pearson Canada Inc. 15 Mineral Lease Definition: right to extract and retain minerals – Minerals are virtually any substance in the ground No ownership of minerals until actually extracted Mineral lease generally acquired from government – Since 1880s land grants generally excludes minerals (only the land not the minerals) Profit à prendre: similar to mineral lease – Right to extract something of value from land Can cover minerals or other natural things (e.g. blueberries, trees) Copyright © 2023 Pearson Canada Inc. 15 Surface Area & Mineral Lease Common law: mineral lease sometimes incidentally entails possession of a small area of land Statute law: some jurisdictions now require mining company to obtain separate surface lease with the surface owner in addition to government mineral lease – Administrative solves disputes by balancing competing interests Copyright © 2023 Pearson Canada Inc. 15 Non-Possessory Interests in Land Concept Summary 15.4 Non-Possessory Interests in Land Dominant Tenement Type of Interest Description Required? Easement a right to use a piece of land in a way that benefits a yes neighbouring piece of land (example a right to use a path on a neighbour’s land) Restrictive covenant a restriction that is placed on one property in order to yes benefit a neighbouring property (example a promise to not construct a building that would block sunlight from entering a neighbour’s garden) Mineral lease a right to remove minerals from a piece of land no (example a right to extract oil from beneath a property) Profit à prendre a right to take something valuable away from a piece no of land (example a right to cut and remove timber from a property) Copyright © 2023 Pearson Canada Inc. 15 LEASES Copyright © 2023 Pearson Canada Inc. 15 Leases Lease (or tenancy): estate in land for specific time created by contract – Generally unenforceable unless evidenced in writing Exception for short-term lease (3 years or less) Parties to a lease – Landlord: party with estate interest giving up possession – Tenant: party acquiring possession Lease must be for a definite, determinable amount of time Copyright © 2023 Pearson Canada Inc. 15 Leases: Duration Fixed term tenancy – Specified period plus perhaps automatic termination Periodic tenancy – Specific period with automatic renewal unless notice to quit Tenancy at will (perhaps not true lease) – No specified period with right to quit at any time Tenancy at sufferance (not a true lease) – Occupation without permission Copyright © 2023 Pearson Canada Inc. 15 Terminating Liability for Lease If you no longer want to occupy remises for full length of lease, you may – Terminate lease early With consent of landlord Follows general contract law – Assign lease – Sublease to a third party Copyright © 2023 Pearson Canada Inc. 15 Leases: Assignments Contractual rights generally assignable Rules regarding assignment of lease (contract) / limitations: – Lease may prohibit assignment or require consent – Assignment of real (but not personal) covenants (promised directly related to the property) – Assignor remains liable if assignee defaults – Assignment must cover entire duration of lease Sublease necessary for shorter period Copyright © 2023 Pearson Canada Inc. 15 Leases: Subleases Definition: lease by tenant to third party – Tenant remains liable as tenant under head lease – Tenant becomes landlord under sublease – Head lease may prohibit sublease or require consent Copyright © 2023 Pearson Canada Inc. 15 Commercial Leases: Covenants (1 of 2) Commercial lease: lease for business purpose Freedom of contract generally allows any terms Standard terms often include: – Rent: obligation owed by tenant Gross lease: tenant pays a single sum which covers rent & costs Net lease: tenant pays rent & a proportion of costs (separately – Rent review: contract allows for periodic review (e.g. market value) Independent obligation from other lease obligations – Eg., a tenant will honour the rental payment irrespective of the landlord fulfilling its promise Copyright © 2023 Pearson Canada Inc. 15 Commercial Leases: Covenants (2 of 2) Quiet possession: obligation owed by landlord – Prohibits landlord from interfering with tenant’s enjoyment Repair and maintenance: – Renovation maybe restricted – Usually landlord takes care of building and common areas, while tenant responsible the leased premises Taxes: obligation on landlord Insurance: sound risk management for both parties Copyright © 2023 Pearson Canada Inc. 15 Commercial Leases: Remedies General contractual remedies – Compensatory damages, discharge for breach of condition, injunction, and/or specific performance May be reduced duty on landlord to mitigate in some jurisdictions Special statutory remedies for leases – Eviction: repossession of premises by landlord Possible if serious breach of rent obligation (court has discretion) – Distress: sale of tenant’s belongings to pay rent Copyright © 2023 Pearson Canada Inc. 15 Residential Leases Residential leases: lease premises for place to live – Residential tenants may have less resources or be less sophisticated than commercial tenants – Unequal status and potential for exploitation (especially when accommodation is scarce) Law controls residential leases more than commercial – Extensive legislation regulating leases (because tenants has a personal connection with the place) Copyright © 2023 Pearson Canada Inc. 15 Residential v s. Commercial Lease ersu Term Commercial Residential Fixed term Terminates at end of term Periodic lease may automatically arise at end of fixed term Termination Normal notice of termination Normally longer (e.g. 90 days for is one “term” monthly lease). Rental rates Parties free to negotiate Governed by rent control Distress Remedy of landlord Remedy not available Repair & Parties free to negotiate Landlord has statutory obligation maintenance to repair and maintain Mitigation Landlord has not duty if Landlord required to mitigate tenant wrongfully vacates property Copyright © 2023 Pearson Canada Inc. 15 Risk Mgt. Lease or Purchase? (1 of 2) Concept Summary 15.5 Risk Management: Lease or Purchase4 Blank Lease Purchase Cost lower immediate costs higher immediate costs (price, down payment, tax-deductible rent legal fees, transfer tax) permanent and ongoing expense purchase expense ends when price paid in full Cash flow leasing usually available even if limited cash initial expenses require substantial cash and flow and poor credit rating usually strong credit rating lower monthly expenses allow resources for often higher monthly expenses other business needs (hiring, acquiring equipment, and so on) Obligations minimal obligations contained in lease full burden of obligations arising from most burdens fall on landlord ownership (eg ongoing maintenance, tort liability, property taxes, environmental regulations) Investment no lasting benefit after end of lease increasing equity as price paid does not tie up capital funds that could eventual full ownership otherwise be invested elsewhere in the opportunity cost of capital invested in the business property that could otherwise be deployed elsewhere in the business Copyright © 2023 Pearson Canada Inc. 15 Risk Mgt. Lease or Purchase? (2 of 2) Concept Summary 15.5 Risk Management: Lease or Purchase4 Blank Lease Purchase Flexibility short-term lease allows for quick growth or long-term commitment downsizing more difficult and costly to change premises Control limited opportunity for renovations complete control over property, structures, untimely disruptions from landlord’s and timing of renovations renovations subject to landlord’s rules on usage Market rent not (immediately) affected by market increased value of property if market rises change changes decreased value of property if market drops Copyright © 2023 Pearson Canada Inc. 15 Indigenous Interests in Land Indigenous peoples of Canada include First Nations, Inuit, and Métis Peoples Aboriginal title is an exclusive common law property interest in land held by an Indigenous Nation based on historic occupation of the land Aboriginal rights are common law rights of Indigenous Peoples that are based on historic practices – Treaty rights are rights of an Indigenous People provided for under a treaty with the Crown Copyright © 2023 Pearson Canada Inc. 15 Indigenous Interests in Land Impact-benefit agreement is between Indigenous communities and businesses proposing projects that could affect Indigenous rights (discussed in Chapter 1 – Duty to Consult). Reserve lands – Land that has been set aside or reserved for a First Nation and then surrender results and the permanent removal of land from a First Nations Reserve. – Designation is the process by which reserve land is conditionally surrenders to the Crown. Copyright © 2023 Pearson Canada Inc. 15 Indigenous Interests in Land Concept Summary 15.6 Indigenous Interests in Land Type of Interest Nature of Interest Customary interest in land property rights in land recognized within a particular Indigenous community as a matter of local custom Aboriginal title exclusive common law property interest in land held by an Indigenous Nation based on historic occupation of the land Aboriginal rights common law rights of Indigenous Peoples that are based on historic practices, eg a right to fish Treaty rights rights of an Indigenous People provided for under a treaty with the Crown, eg right to hunt on land owned by the provincial government First Nation interest in reserve land exclusive property interest in reserve land held by a First Nation Leasehold interest in reserve land right to exclusive possession in a portion of a reserve for a definite time period Certificate of possession right to exclusive possession of a portion of a reserve held by a member of the First Nation Interest under a land code property interest in reserve land provided for under the terms of a First Nation’s land code Interest under a self-government property interest in Indigenous land provided for under authority recognized agreement or modern treaty through a self-government agreement or modern treaty with the Crown, eg fee simple interests in Nisga’a lands Copyright © 2023 Pearson Canada Inc. 15 TAKE-AWAYS What surprised you? What does it mean to say a tenant can “only give what he or she has” in a subtenant situation? Copyright © 2023 Pearson Canada Inc. 15