When parties co-own a property, either as joint tenant or tenants in common, they retain the prima facie right to compel either a partition or sale of the property. However, a co-owner can be deprived of the right to compel a sale in circumstances of malice, oppression, or vexatious intent. Specifically, the Court has recognized that in order to prevent a partition or sale, there must be conduct that undermines the reasonable expectations of the parties. In Green et al. v. Gardeazabal, 2023 ONSC 2683, the Court clarified what constitutes “reasonable expectations” in this regard.
In mid-2021, the Applicants, Ms. Green and Mr. Dutra, and the Respondent, Ms. Gardeazabal, contemplated purchasing an investment property together. Prior to their purchase, the parties had discussed achieving a return on investment within two years of owning the property. Green and Dutra had also inquired with a mortgage broker and real estate agent about the possibility of a return on investment within one to two years. The parties then purchased a property in Severn, Ontario in April 2022, and each held a 50% share as tenants in common, with Green and Dutra holding their 50% share as joint tenants. There were no written contracts or agreements among the parties governing their joint venture. Shortly after the purchase, Green and Dutra told Gardeazabal that they wished to sell the property. Green and Dutra gave Gardeazabal a number of options, including a potential buy-out of their interests. Instead of doing so or presenting a counteroffer, Gardeazabal indicated she would simply allow the mortgage to renew automatically to prevent Green and Dutra from getting out of it. Green and Dutra then brought an application for the sale of the Property. Gardeazabal sought a dismissal of the application and an interim injunction preventing the sale until the end of April 2024.
Gardeazabal opposed the sale of the property on the basis that Green and Dutra’ conduct and representations before the purchase, created a reasonable expectation that the parties would hold the property for at least 2 years. She had formed a company with Green and Dutra to handle property management and rentals and had rented the property for the summers of 2022 and 2023. She stated that she relied on the reasonable expectations to secure her portion of the down payment, which amounted to her life savings, and that after the parties purchased the property, Green and Dutra wanted to purchase other properties but could not finance these projects while they owned the subject property. She submitted that as a result, Green and Dutra’ conduct was coercive and abusive, and unfairly disregarded her interests.
Green and Dutra’s Position
Green and Dutra submitted that the evidence did not support Gardeazabal’s reasonable expectation claims, as there was no formal agreement as to how long the parties would own the, property. They argued that any references to this timeline in their discussions were projections subject to the ordinary considerations of real estate investment. Further, any communication done prior to purchasing the property was done for the purposes of planning or for due diligence. Finally, Green and Dutra argued that neither of them acted in a coercive/abusive/unfair manner, and they no longer trusted Gardeazabal as they were concerned she did not account for all the funds she received from vacation renters.
Rights Under the Partition Act
Justice Harper first canvassed the legal considerations governing the partition and sale of land pursuant to the Partition Act. Per sections 2 and 3 of the Act, all tenants in common have a prima facie statutory right to compel a partition or sale. The presumption is in favour of partition, although a sale will be ordered if found to be more advantageous to the parties, or if the land is not suitable for partition. The Court has the discretion to refuse either a partition or sale; however, the party resisting the request has the onus of demonstrating the other party’s malice, oppression, or vexatious intent, such that the remedy sought would cause them hardship. In exercising this discretion, the Court should account for any agreements between the parties about the land in question.
Oppressive Conduct and Reasonable Expectations
Justice Harper then reviewed the legal concepts surrounding oppressive/coercive conduct and reasonable expectations within the context of the Partition Act. The oppression remedy, as it appears in corporate law, contains two elements: 1) conduct that undermines the reasonable expectations of the parties; and 2) conduct that is coercive/abusive/unfairly disregards a party’s interests. A claimant’s reasonable expectations to be treated a certain way will depend on the facts of the case, the relationship at issue, and the entire context of the matter. A party’s oppressive conduct is also usually merged or tied up with conduct that may defeat the reasonable expectations of the parties. The Court found this contextual approach should be considered when deciding whether or not to grant a remedy under the Partition Act, as a determination of oppressive conduct requires an examination of the relationship between the parties, their reasonable expectations, the nature of the conduct, and the impact on the person seeking to avoid a sale.
Application of the Law to the Facts
Justice Harper found that while the parties embarked on an investment venture, there was never any agreement among them on the terms of this venture, and any conversations, planning, or due diligence leading up to the purchase of the property did not amount to establishing a reasonable expectation to hold the Property for at least two years. While he noted that Gardeazabal did have an expectation of the length of time the Property was to be held, this expectation was subjective, as setting a minimum time to hold an investment is not a reasonable expectation, given the nature of investing in real estate.
Justice Harper then went on to find that Green and Dutra did not act in a manner that was oppressive or in bad faith. They no longer saw the Property as profitable, it did not suit their needs, and they had lost confidence in Gardeazabal’s ability to manage it. He further noted that when Green and Dutra communicated this to Gardeazabal, she did not consider any of the options Green and Dutra had given her to retain the property. In the end, Justice Harper ordered a sale of the property,
Parties who wish to purchase an investment property together should document their expectations and intentions in writing and have such documentation reviewed by a lawyer prior to execution. Even with such documentation governing the relationship between parties, a court will take a contextual approach when assessing whether or not one party has behaved in an oppressive manner outside of another party’s reasonable expectations. This context will include the nature of the real estate market, which means that any expectations the parties may have about a minimum amount of time to hold a real estate property will likely not be considered valid by the court.