Partition of Property: Minority Interest

The Supreme Court has a discretion under the Partition of Property act to order a sale of a minority interest in co owned property.

The Supreme Court has a discretion under the Partition of Property act to order a  sale of a minority interest in co owned property.

Generally speaking, if a party owns 50% of property in co-ownership, and seeks the sale of the property, then, the court must order a sale unless there is good reason not to do so.

The Partition of Property act gives a broad discretion and allows the court to find remedies, which may contemplate sales to other parties, or valuations, or both.

In the situation where someone has less than a half interest in property, such as 25%, the party may still seek a court ordered sale of the property under the Partition of Property act, but the court in that situation has a far more broad discretion as to whether or not to order partition and sale.

In Haigh v. Kent 2016 BCSC 333, the plaintiff was the awarded a 25% beneficial interest in property on the basis of constructive trust as a remedy for unjust enrichment. The property was a 95 acre resort on beachfront property that had been owned by the family for several decades.

In previous litigation Haigh v. Kent 2012 BCSc 1361, the court found that the plaintiff had been unjustly enriched by his contributions of 20 years to the resort, and found a constructive trust in favour of the plaintiff was appropriate to the extent of a 25% ownership share in the property.
The property was found by the court to be valued at $1.65 million.

The property was rather unique and an order dividing such property into separate lots would be impractical and inequitable, so that an order for sale and distribution of proceeds would therefore seem to be view most appropriate remedy. However, such an order for sale would work serious hardship on the defendants who it had the property in the family for seven decades, and for generations.

The court therefore found that the appropriate remedy was to order that the plaintiff sell his interest in the property to the defendants pursuant to section 8 of the Partition of Property act.

The court found that the plaintiff was entitled to be paid 25% of the fair market value of the property as a resort, but was not entitled to share in the profits from the resort business, but no deduction should be made in relation to insurance premiums, commercial mortgage on the property or mortgage payments.

During the partition and sale trial, the court found that since the defendants constructively held a 25% ownership share in trust for the plaintiff, the plaintiff was therefore entitled to the legal interest in the trust property, and not just the beneficial ownership as the defendants had argued.

The court therefore concluded that the plaintiff was entitled to an order vesting in him legal title to an undivided 25% interest in the property.

Section 8 of the Partition of Property act states as follows:

1) In a proceeding for partition where, if this act had not been passed, an order for partition might have been made, then, if any party interested in the property involved request the court to order a sale of the property in a distribution of the proceeds instead of a division of the property, the court may order a sale of the property, and give directions.

2) The court may not make an order under subsection 1, if the other parties interested in the property, or some of them, undertake to purchase the share of the party requesting the sale.

3) If an undertaking is given, the court may order of valuation of the share of the property requesting the sale in the manner the court thinks fit, and may give directions.

The court stressed that the words “may be compelled” under the Partition of Property act, are discretionary, and the onus is on the parties who do not wish to suffer partition or sale to demonstrate to the court that the interests of justice are such that the order for partition and sale should not be made.

The fact remains that the discretion is broad and unfettered, and will turn on whether justice requires that such an order not be made. (Bradwell v Scott 2000 BCCA 576 at paragraphs 26 – 30)

The court also referred to section 7 of the Partition of Property act, which contemplates a proceeding for partition where the court concludes that because of the nature of the property involved, or any other circumstance, a sale and distribution of the proceeds would be more beneficial than division. Then, if a party so requests, the court may order the sale of the property and the distribution of the proceeds notwithstanding the objection of any other party.

The court concluded that it was satisfied that in this case, that an order for the division of the property would be neither equitable nor practical due to it’s uniqueness, and therefore the plaintiff should have the right to a monetary buyout of his 25% interest in the property.

The court ordered that the plaintiff was entitled to an undivided 25% in the property that should vested him in fee simple, and on the basis of section 8 of the act, the defendants were directed to purchase the plaintiffs undivided 25% interest on the basis of the appraised value.

Partition and Sale of Property Refused

Partition and Sale of Property Refused

In Kane v. Hanslo 2017 BCSC 2393 a claim for Partition and Sale of property was referred to the trial list rather than being decided at a summary trial.

In 2011 the deceased transferred a 50% interest in a 42 acre property he owned to the respondent in joint tenancy.

The respondent claimed that he received the interest in exchange for a promise to assist the deceased with his troubled financial situation by converting the property into a farm.

In 2013 the deceased changed his mind and transferred his remaining half interest to himself, thereby severing the joint tenancy and creating a tenancy in common.

The deceased then commenced an action seeking a declaration that the respondent held his interest in trust, and for an order that the respondent’s 50% interest be re-conveyed to the deceased.

The deceased claimed that he never intended to convey the beneficial ownership of the property and that he was manipulated in doing so through the respondent’s exercise of undue influence.

The court action was still pending with the deceased died intestate in 2014.

Legal title to the half interest of the deceased was conveyed to the petitioner in his capacity as administrator of the estate of the deceased. This property was the primary asset of the estate and distribution of the asset could not be effected until the property was sold.

The petitioner applied for an order for partition and sale, but the petition was dismissed and the matter referred to the trial list.

The court held that the pending trial of the action constituted “good reason” within the meaning of section 6 of the Partition of Property act not to order a partition and sale at this stage. It was therefore neither “necessary nor expedient” for the property be sold at this time.

The court held that it was necessary for the matter to proceed to trial to clarify the rights of the parties before it was determined what the property should be sold and if so, on what terms.

The court followed the reasoning in Lagoski v Shano 37 ETR (3d) 141 that had many parallels to the subject case. The court had ordered partition and sale of property that had been transferred back and forth between the donor and donee, on the basis that the allegations raised the triable issue that should not have been decided summarily, given the conflicts in the evidence.

The Lagoski case raised issues of mental capacity and undue influence with respect to the transfer of the property into joint tenancy that was subsequently severed.

If the party was to succeed in establishing that the transaction severing the joint tenancy was the product of undue influence or lack of mental capacity, such a finding would rebut the presumption of indefeasible title under the land title act.

Partition and Sale Refused Due to Serious Hardship

Partition and Sale Refused Due to Serious Hardship

Lou v Vesterinen 2017 BCSC 1566 refused an application for partition and sale by  trustee in bankruptcy due to “serious hardship” of the two young children living in the home, one of whom was severely disabled.

It is a good example of where the court will exercise it’s discretion to refuse partition and sale where hardship exists to the owner of the property.

The court’s discretion under the PPA:

[105] Section 2 of the PPA provides in relevant part:

(1) All joint tenants, tenants in common, . . . and all parties interested in any land may be compelled to partition or sell the land, or a part of it as provided in this Act.

(2) Subsection (1) applies whether the estate is legal or equitable or equitable only. . . .

[106] Under s. 7 of the PPA, the court has the discretion to order sale of property, rather than partition.
[107] Sections 2, 6 and 7 also give the court discretion not to order a sale.

[108] In Harmeling v. Harmeling (1978), 90 D.L.R. (3d) 208 (B.C.C.A.), a case decided under what is now s. 2 of the PPA, the court declined to limit the discretion to cases where the proceedings were brought with a lack of good faith, malice or vexatious intent. Seaton J.A., writing for the majority, stated at p. 212:

. . . In my view we should not limit the discretion of that manner. I think we ought to accept without qualification the general statement that there is a prima facie right of a joint tenant to partition or sale and that the Court will compel such partition or sale unless justice requires that such an order should not be made.

[109] In Bradwell v. Scott, 2000 BCCA 576, the Court explained that there was no real difference between the discretion conferred under ss. 6 and 2 of the PPA:

43 It does not appear from my reading of either the majority or minority reasons for judgment in Harmeling that the section then equivalent to our present s. 6 was under consideration. Rather, the section considered by both judges who wrote in Harmeling, as indicated above, was s. 3 (now s. 2), and in particular the words “may be compelled”. We are bound by the majority opinion that those words confer a discretion to refuse an order where “justice requires that such an order should not be made”.

44 This case, however, turns on the interpretation of s. 6, and the meaning to be given to the words “unless it sees good reason to the contrary”. Having said that, I am unable to see any real difference between the discretion conferred by this language and that described by Mr. Justice Seaton as arising under s. 3 (now s. 2).

45 To the extent that “serious hardship” was said in Dobell to be the test for “good reason to the contrary” I would respectfully disagree. Serious hardship to a respondent may be a proper ground for refusing an order for sale, as might lack of “good faith, vexatiousness or maliciousness” on the part of the petitioner. But these are not the exclusive measure of “good reason”. I agree with Mr. Justice Seaton that we should not limit the discretion by creating a general rule that might serve to justify refusal in any given case. The facts and circumstances of each case must be examined to determine whether a good reason, of whatever sort, exists for refusing the order.
[Emphasis added].

[110] Serious hardship is a circumstance that may constitute a proper ground for refusing an order for sale: Mowat v. Dudas, 2012 BCSC 454 at para. 147.

[111] In Mowat at paras. 162 to 167 and 191, the court concluded that it would be unjust to make the order for sale where a substantial number of residents of a common-law condominium, many of whom were elderly, infirm or of very limited financial means, would be put out of their homes without the means to find suitable replacement housing.

[112] Here, the petitioner had a prima facie right to an order for sale of Glenroy Drive. The question is whether, in all the circumstances, there is good reason for the court to refuse that order.

[113] Glenroy Drive is the family home of the respondent, Mr. Vesterinen, the respondent’s adult daughter and her two young children. Nichola Sobie rents a three-bedroom basement suite at Glenroy Drive, for which she pays rent of $700 a month to her mother. She works as a retail clerk and relies upon the respondent for child care for her two children, ages eleven and four.

[114] The respondent’s daughter has a history of bipolar disorder and schizophrenia for which she receives ongoing treatment. From 1997 through 2004 she was repeatedly hospitalized for psychosis or depression. Since then, her condition has stabilized. She attributes her ability to function in the community and as a mother to the support she receives from the respondent and the stable accommodation she enjoys at Glenroy Drive.

[115] The petitioner submits that while an order for sale may result in some inconvenience, the respondent has not shown that she, or members of her family, would suffer serious hardship. I disagree. The respondent’s daughter earns a limited income, is a vulnerable person, relies upon her proximity to her mother for both childcare and emotional support, and would likely encounter difficulty in finding similar accommodation within her means. I find that an order for sale would result in serious hardship to the respondent’s family.

Conclusion on Petitioner’s Application

[116] In my view, this is a case where there is good reason to refuse an order for sale. In reaching that conclusion, I take into account both by finding of serious hardship and my finding that the respondent’s beneficial interest in Glenroy Drive substantially exceeds Mr. Vesterinen’s beneficial interest.