Legal Blog

Severance (2)

In our August 2011 newsletter, we discussed the severance of a joint tenancy and stated:

“Two or more people may own property together in one of two ways: as joint tenants or as tenants in common. On death, the interest of one joint tenant passes to the other joint tenant whereas the interest of a tenant in common passes to that person’s heirs in the normal course. Joint tenants acting together may, if they wish, choose to convert (or sever) a joint tenancy to a tenancy in common. Indeed, one joint tenant can unilaterally sever a joint tenancy. Is there ever a circumstance in which a third party can sever a joint tenancy?”

The answer to the last question was yes. If a creditor moves to have a joint tenant’s interest sold under a writ of seizure and sale and the sheriff advertises the property for sale, that is sufficient to sever the joint tenancy.

What happens when a joint tenant applies for an order taking back a full interest in the property, but, in the meantime, a creditor has filed a writ of seizure and sale against the other joint tenant. This situation arose in Brunton v. Lanzarotta, a 2024 decision of the Ontario Superior Court of Justice.

Gratuitous Transfers

Elderly people continue to transfer properties into the names of their children to avoid probate taxes on death and, possibly, even the need to obtain probate at all. This can be extremely dangerous. It can result in creditors of the children attacking the children’s interests in the property; adverse capital gains tax against the children if the parents sell the property before it passes to the children; and adverse effects on the parents if the children assert property rights before the parents have died. This type of gratuitous transfer may work when the death of the parent is imminent, but, otherwise, we would not advise it as an estate planning tool.

Facts

In 2016 and 2017, elderly parents decided, in their wisdom, to transfer three of their real estate properties to themselves and the daughter of one of them, presumably as joint tenants. They also added daughter as an account holder to several of their bank accounts.

Father died in 2020. Accordingly, mother and daughter were the joint owners of the properties and the bank accounts. In 2023, a creditor obtained a judgment against daughter for $1.8 million.

We assume that the creditor searched title, found daughter’s joint ownership in the properties, and threatened mother and daughter that it would be attacking daughter’s interest in the properties.

Mother realised that she would be adversely affected by the creditor’s claims and, accordingly, brought an application for a declaration that daughter held the property and the bank accounts by way of an actual or resulting trust for mother. If such were the case, the creditor’s claim against the properties would be defeated because daughter held no beneficial interest in the properties, certainly no interest that could be exigible.

The application had two issues.

Issue #1

The creditor claimed that the moment the parents registered a transfer of the properties listing daughter as a joint owner, daughter became a joint owner with full property rights – regardless of the parties’ intentions at the time of the transfer and regardless of any assertion of a trust, actual or resulting.

The creditor relied on s. 90 of the Land Titles Act, which states:

“A transfer of registered land, made without valuable consideration, is subject, so far as the transferee is concerned, to any unregistered estates, rights, interests or equities subject to which the transferor held the same, but otherwise, when registered, in all respects, and in particular as respects any registered dealings on the part of the transferee, has the same effect as a transfer of the same land for valuable consideration.”

The application judge acknowledged the principle that the land titles register guarantees that a person named as an owner has perfect title, subject only to registered encumbrances and some statutory exceptions. This guarantee is necessary to protect bona fide purchasers for value without notice. They must be able to rely on the integrity of the conveyancing process.

The judge noted, however, that a creditor is not third party purchaser or mortgagee searching title and relying on the register. It merely pursues interests in assets that titled owners may hold in a property. It has no actual, or even potential, losses if the titled owners are holding the property in trust. It does not rely on the register to its detriment. In this case, the creditor was merely searching for daughter’s assets and found the three properties registered in her name.

The judge also noted that there is nothing in the legislation declaring the registry to be conclusive evidence of ownership.

The judge concluded by saying “I do not agree with the respondent’s doomsday argument that the sky will fall if the land titles registration indicating that (daughter) was a co-owner does not necessarily allow (the creditor) to succeed and enforce its judgment against (daughter’s) ownership interest in the properties.”

The judge therefore held that the mere fact that the title had been transferred into daughter’s name did not necessarily entitle the creditor to seize the properties.

Issue #2

Once the judge decided the first issue, the judge had to decide whether there was, indeed, a trust, either actual or resulting, that was created when the properties were transferred or, instead, whether there was a gift to daughter. If daughter obtained title by way of a gift, the creditor could attack her interest in the properties. If daughter was merely a trustee, then daughter had no beneficial interest in the properties and the creditor had no interest to attack.

The judge understood that, in law, a transfer of property from a parent to an adult independent child without consideration would lead to a rebuttable presumption of resulting trust for the benefit of the parent. A transferee (i.e. daughter) or, in this case, daughter’s creditor has the onus to prove that a transfer was a gift.

Trial

In her application, mother requested the application judge to declare that there was a resulting trust, based on, we presume, the evidence put forth in the written application record.

The application judge had previously noted that the creditor had obtained its judgment against daughter because daughter had made false representations to the creditor to obtain food products on credit and then failed to pay for the food products that the creditor had delivered. In the action against daughter, the court had made a finding of fraud.

The creditor argued that the answer to the question of the intentions of the parties to the transfer would be significantly based on credibility and reliability assessments of the evidence of mother and daughter. Accordingly, the issue should be determined by way of an actual trial with oral evidence. The application judge agreed and ordered a trial of the issue.

 

Image courtesy of vedatzorluer.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.