ONTARIO – The rule against perpetuities does not apply to a contractual right that does not create an interest in land. The Rule arises out of the public policy against the fettering of real property with future interests, dependent upon unduly remote contingencies and applies to extinguish an interest in land if the interest does not vest within 21 years.
Ottawa (City) v. ClubLink Corporation ULC
2021 ONCA 847 ONCA (CANLII) https://canlii.ca/t/jkvg7
Juriansz, Tulloch, and Roberts JJ.A, November 26, 2021
This ONCA case reviews contract interpretation principles and the application of the rule against perpetuities.
ClubLink acquired property subject to historical land development agreements, which were made between Campeau Corporation and the former city of Kanata by way of an Assumption Agreement. Paragraphs 5(4) and 9 of the 1981 Agreement are at issue. Roberts JA summarized the paragraphs as follows:
“Campeau, or its successors and assigns, must operate a golf course on the property in perpetuity (“the golf course lands”), failing which, the golf course lands are to be conveyed at no cost to Kanata, now part of the respondent, the City of Ottawa (“the City”); and, if the golf course lands are conveyed, the City is obliged to continue using the golf course lands for recreation or natural environmental purposes, failing which, they are to be reconveyed to Campeau”.
ClubLink applied to the City to develop the golf course lands. The City brought an application to require ClubLink to withdraw the development application and for orders that the golf course lands be conveyed to the City and other relief.
The Application Judge allowed the City’s application in part and decided the parties did not intend to create an interest in land because they never intended the conveyance to materialize and declared the 1981 Agreement to be valid.
The rule against perpetuities applies to extinguish an interest in land if the interest does not vest within 21 years. The rule does not apply to a contractual right that does not create an interest in land. The rule invalidates contingent interests in that vest too remotely. para.2
The ONCA referred to leading case on contract interpretation, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC para.57, which sets out that when surrounding circumstances are considered in interpreting the terms of a contract, they must not be allowed to overwhelm the words of the contract and that the objective is to understand the “mutual and objective intentions of the parties as expressed in the words of the contract.”
Roberts JA reviewed the standard of review set out in Sattva paras.50-54 and that generally there is a deferential standard of appellate review unless there is an extricable error of law or palpable and overriding error when appellant court intervention is warranted.
The ONCA held that the application judge made an extricable error of law in his interpretation of section 5(4) and 9 of the 1981 Agreement Specifically, the application judge erred by using the expectation that a contingency would materialize as a factor to distinguish between an intent to create an interest in land and a contractual right. para. 33.
Roberts JA held that “a contingent interest in land can be created without the intention that it will one day “ crystallize” and that control over the triggering event is not determinative.” para.34.
If the conveyance provisions create an interest in land and if the conveyance is not made within the 21-year perpetuity period, the rule applies and the interest in land is extinguished. The paragraphs in the 1981 Agreement did not fit in the usual format of an option to purchase that creates a contingent interest in land and a right of first refusal which does not. As a result, Roberts JA held that the application judge should have reviewed whether the parties intended to create an interest in land or a mere contractual right.
Roberts JA stated that to ascertain the parties’ intentions it is necessary to read all the agreements and referenced the “ related contracts “ principle of contract interpretation. Under the related contracts principle, the contracts must be read in light of each other to achieve interpretive accuracy and give effect to the parties intentions as set out in Catalyst Capital Group Inc. v Dundee Kilmer Developments Limited Partnership 2020 ONCA 272 and other cases referenced at para. 54.
Roberts JA held that the parties intended by the clear language and purpose of the agreements to create contingent interests in the golf course lands that ran with and fettered the land; that the City’s interest in the golf course lands was contingent on the developer or its assigns ceasing to operate the golf course; the reconveyance was contingent first on the conveyance under section 5 and second the City ceasing to use the lands as prescribed . As neither party’s right to a conveyance of the land vested in the perpetuity period, the contingent interests in the golf course lands created by the paragraphs in the 1981 Agreement were void.
Appeal allowed as there were extricable errors of law in the judge’s construction of the 1981 Agreement. Sections of the 1981 Agreement are void and unenforceable Decision set aside.