Legal Fundamentals
for Canadian Business
Third Edition
Chapter 8
Property
Copyright © 2013 Pearson Canada Inc.
8-1
Learning Objectives
• Distinguish between real and personal property
• Identify the rights and responsibilities associated
with possession of personal property, keeping in
mind owners, finders, and bailees
• Recognize the rights of real property owners
• Outline the process for transferring title to land in
various jurisdictions
• Explain the nature and role of mortgages
(Continued)
Copyright © 2013 Pearson Canada Inc.
8-2
Learning Objectives
(Continued)
• Describe the rights and responsibilities of
landlords and tenants
• Discuss the implications and regulations of
environmental protection for property owners
• Note the role of insurance in risk avoidance
Copyright © 2013 Pearson Canada Inc.
8-3
Types of Property
• Property refers to a person’s rights to
something (not to the thing itself)
– Real property - land and anything permanently
affixed to it
– Personal property
• Tangible, movable items – chattels or goods
• Intangible property
– Choses in action
– Intellectual property
Copyright © 2013 Pearson Canada Inc.
8-4
Who Has the Right to the Goods?
• Possession gives right to goods over all
others except someone with prior claim
• Rights depend largely on how goods were
acquired
• Rights can depend on where object is found
• Person who finds and takes possession of
goods has obligation to take care of them
for rightful owner
(Continued)
Copyright © 2013 Pearson Canada Inc.
8-5
Who Has the Right to the Goods?
(Continued)
Copyright © 2013 Pearson Canada Inc.
8-6
Bailment
• Bailment - One person takes possession of
and cares for goods of another
– Bailor – person who delivers goods
– Bailee – person who takes goods
• Duty of bailee varies by nature of bailment
(Continued)
Copyright © 2013 Pearson Canada Inc.
8-7
Bailment
(Continued)
• Gratuitous bailment - only one party
receives a benefit (e.g., borrowing goods,
storing goods)
–
–
–
When for benefit of bailee, duty imposed on
bailee requires high standard of care
When for benefit of bailor, duty imposed on
bailee is lower
Nature of goods also affects duty owed
(Continued)
Copyright © 2013 Pearson Canada Inc.
8-8
Bailment
(Continued)
• Involuntary bailment
– Judge imposes reasonable person test
• Bailment for value - Of mutual benefit or by
contract
– Duty of care imposed on bailee is that of
reasonable person
– Usually industry standards or terms of contract
– Exculpatory clauses interpreted narrowly
(Continued)
Copyright © 2013 Pearson Canada Inc.
8-9
Bailment
(Continued)
• Bailment for value
– High standard imposed on common carriers and
innkeepers to care for goods of customers
• Statutes limit liability today
• Right of lien (keep possession) if bailee not
paid
Copyright © 2013 Pearson Canada Inc.
8 - 10
Real Property
• Real Property - Land and things
permanently attached to it
– Personal property can become part of real
property when affixed to it
– Includes reasonable use of space above land
– Includes right to use of land below
– Does not include mineral/oil and gas rights
Copyright © 2013 Pearson Canada Inc.
8 - 11
Fee Simple Estates
• Same rights as ownership; indefinite
• Government always has the power to
control, restrict, or expropriate
• Life estate - Gives ownership rights to
beneficiary, but only for the length of
his/her life
– Holder of life estate can’t damage property
– Heirs have remainder interest
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 12
Fee Simple Estates
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 13
Leasehold Estate
• Leasehold Estate - Exclusive use and
possession of land for a specified time
– May also be periodic
Copyright © 2013 Pearson Canada Inc.
8 - 14
Lesser Interests in Land
• Easement – gives another permanent right
to use land
• Right of way – gives right to cross property
• Restrictive covenant – restricts how
property can be used
– Must be negative to bind all future owners
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 15
Lesser Interests in Land
(Continued)
• Building scheme – restrictive covenants that
benefit all properties in a development area
• License – contractual right to use land, but
gives no interest in land
• Profit a prendre – right to remove material
from land (e.g., trees)
Copyright © 2013 Pearson Canada Inc.
8 - 16
Owning Property Together
• Joint tenancy
– Joint ownership of whole property
– If one dies, survivor gets that person’s portion
• Tenancy in common
– Each party has an undivided interest
– No right of survivorship
– Each may sell, mortgage, or lease their portion
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 17
Owning Property Together
(Continued)
• Dower rights and homestead rights
– Traditionally protected spouse in case of
marriage breakdown
– Statutes now give spouse claim to family assets
even when not registered on the title
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 18
Owning Property Together
(Continued)
• Condominiums
– Share ownership of common property; fee
simple interest in individual unit
– Rules of use set by condominium (or strata)
corporation
– All owners pay fees and special levies to
maintain common property
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 19
Owning Property Together
(Continued)
• Cooperatives
– Members own whole property together
– Each share entitles occupancy of a specific
apartment
Copyright © 2013 Pearson Canada Inc.
8 - 20
Option to Purchase
• Commitment to hold an offer to sell open
for a specified time
– If option not exercised, no further obligations
– Often used by developers and speculators
Copyright © 2013 Pearson Canada Inc.
8 - 21
Requirement of Registration
• Land registration systems
– Land Registry system
• Depository of documents
• Must search to determine ownership
– Land Titles system
• Guarantees title
• If mistake or fraud, insurance fund will compensate
Copyright © 2013 Pearson Canada Inc.
8 - 22
Transferring Land
• Agreement of purchase and sale
• Form submitted to land registry
• Criminal offence to destroy, cancel,
conceal, or obliterate documents
• Adverse possession will allow for title
transfer in some jurisdictions
• Right to cross land may also be acquired by
prescription in some provinces
Copyright © 2013 Pearson Canada Inc.
8 - 23
Mortgages
• Method of financing purchase of property
• Possession of land remains with purchaser,
but title is transferred to creditor as security
• Right to redeem title by payment of debt
– Known as equity of redemption
– If there is a default, creditor forecloses
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 24
Mortgages
(Continued)
• Foreclosure is a two-stage process
– First, a time limit is set for exercising the equity
of redemption
• During this time, the debtor attempts to re-finance or
sell the property
– If not paid, either
• final order of foreclosure, or
• Court Order for sale by mortgagee
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 25
Mortgages
(Continued)
• Second or equitable mortgages
– Equity of redemption used to secure more debt
(rather than legal title to property)
– More risk; therefore a higher interest rate
– Court gives second mortgagee right to try to
sell property during redemption period
• Must pay off all previous mortgages
• Debtor may have to pay any shortfall
Copyright © 2013 Pearson Canada Inc.
8 - 26
Leasehold Estates
• Right to exclusive possession and use for
specified time
• Periodic Leases
– Lease for specified period
– Automatically renews for same period
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 27
Leasehold Estates
(Continued)
• Any lease longer than three years must be in
writing to be enforceable
• Considered an interest in land
• In some jurisdictions, frustration applies to
leases by statute
Copyright © 2013 Pearson Canada Inc.
8 - 28
Commercial Tenancies
• Agreement determines obligations in
commercial leases
–
–
–
–
Vacant possession
Quiet enjoyment
Obligations to make repairs
Termination of lease
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 29
Commercial Tenancies
(Continued)
• Obligations of tenant
– Pay rent
– Use property only as agreed
– Comply with terms of lease agreement
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 30
Commercial Tenancies
(Continued)
• If tenant fails to pay rent, landlord has
options
– Terminate tenancy (forfeiture); tenant may ask
court to order relief
– Distraint involves seizing tenant’s goods for
rent owed; tenancy continues
– If tenant abandons, can sue for rent for rest of
lease
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 31
Commercial Tenancies
(Continued)
• Landlord has no duty to mitigate in case of
abandonment
• Duty to repair will be specified in lease
• Lease also specifies rights to renew, sublet,
or assign
• Tenant may take fixtures used for their
business when they go (as long as property
is not damaged)
Copyright © 2013 Pearson Canada Inc.
8 - 32
Residential Tenancies
• Legislation has greatly modified common law and
varies by jurisdiction
–
–
–
–
–
–
Standard form leases with written copy to tenant
Repairs and health standards
Entrance to premises
Assignment and subletting
Deposits
Notice of rent increases and termination
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 33
Residential Tenancies
(Continued)
• Landlord
– Must maintain services
– Cannot seize tenant’s property
– Must mitigate losses
• Residential tribunals hear complaints
• Frustration applies to residential tenancies
Copyright © 2013 Pearson Canada Inc.
8 - 34
Regulation of the Environment
• Common Law
– Riparian rights – People living on river or
stream have right to continued quality and
quantity of water flow
• May be overridden by statute
– Torts of nuisance, trespass, etc.
– Ineffective in protecting environment
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 35
Regulation of the Environment
(Continued)
• Federal Legislation
– Fisheries Act – Control of pollutants in fishbearing water
– Canadian Environmental Protection Act –
created government department responsible for
preventing pollution and protecting
environment and human health while
contributing to sustainable development
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 36
Regulation of the Environment
(Continued)
• Canadian Environmental Protection Act
(Continued)
– Significant enforcement power
– Can require pollution prevention plans
– Directors, managers, and agents of businesses
can be held liable for violations (unless due
diligence shown)
– Provides for civil remedies
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 37
Regulation of the Environment
(Continued)
• Canadian Environmental Assessment Act
– Projects controlled by federal government must
go through environmental assessment process
• Provincial legislation
– All provinces and territories have legislation
similar to Canadian Environmental Protection
Act
– Covers environmental concerns within
provincial jurisdiction
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 38
Regulation of the Environment
(Continued)
• Overlap of regulations at federal, provincial,
and municipal levels poses problems for
businesses
Copyright © 2013 Pearson Canada Inc.
8 - 39
Insurance
• Purchase insurance by paying premiums
• Spread risk as only a few will need
compensation
• Insurance companies may reinsure potential
losses through larger companies
• Policies are usually standard form, but may
have riders and endorsements
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 40
Insurance
(Continued)
• Insured must have insurable interest in
subject of policy to recover for loss
• Insured only compensated for actual loss
(based on coverage purchased)
– Co-insurance clauses usually require 80% of
value insured
– Maintain insurance equal to value of property
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 41
Insurance
(Continued)
• Deductible – Amount insured must pay
toward loss
• Salvage rights – Insurer has right to salvage
what it can from the loss
• Subrogation rights – Once insurer pays,
insurer assumes insured’s right to sue
(Continued)
Copyright © 2013 Pearson Canada Inc.
8 - 42
Insurance
(Continued)
•
•
•
•
•
•
•
Property insurance
Business interruption insurance
Liability insurance
Life insurance (key personnel in business)
Health and disability insurance
Comprehensive insurance policy
Duty of good faith for all policies
– Must fully disclose all relevant information
Copyright © 2013 Pearson Canada Inc.
8 - 43
Bonds
• Bonds are similar to insurance
• Fidelity bond
– Employer buys bond to cover wrongful conduct
by employees
• Surety bond
– Guarantees performance of a contract
Copyright © 2013 Pearson Canada Inc.
8 - 44