Is a beneficial owner of real property affected by a restrictive
covenant that was mistakenly removed from title? The BC Supreme
Court considered this question in BC Retail Partners (Boitanio
Mall) Ltd. v. Overwaitea Food Group, 2015 BCSC 404.
In 2004, BC Retail Partners General Partnership (the
"General Partnership") and BC Retail Partners (Boitanio
Mall) Ltd. ("BC Retail") purchased one of the three lots
comprising Boitanio Mall in Williams Lake, British Columbia. BC
Retail was the registered owner of the lot, and the trustee,
nominee and agent for the General Partnership, which was the
beneficial owner of the lot.
When they purchased the lot, both BC Retail and the General
Partnership were explicitly told by their solicitor that the lot
was subject to a restrictive covenant in favour of Overwaitea Food
Group, which operated a Save-On Foods on another lot in Boitanio
Mall. The restrictive covenant prohibited any other premises in the
mall from being used for a grocery store. However, at some point
after BC Retail and the General Partnership agreed to purchase the
lot, but before the transfer of title was registered in the land
title office, the restrictive covenant was erroneously released
In 2008, BC Retail and the General Partnership sold their
Boitanio Mall lot to Janda Group Holdings W.L. Ltd.
("Janda"). To avoid property transfer tax, BC Retail
remained the registered owner on title while the General
Partnership transferred its beneficial interest to Janda. Janda
also bought the shares of BC Retail and replaced the director and
officer of BC Retail with a director and officer related to Janda.
When this transaction took place, the restrictive covenant was not
on title, so Janda and the new director and officer of BC Retail
had no notice of it.
The mistaken removal of the restrictive covenant only became an
issue in about 2013 when BC Retail and Janda attempted to lease a
large retail space on their lot that had previously been occupied
by Zellers to Loblaw's. Overweaitea Food Group caught wind of
the plan for Loblaw's to move in and asserted their intention
to enforce the restrictive covenant.
Normally, a purchaser like Janda who had no notice of an
unregistered interest would be protected by section 29 of the
Land Title Act, R.S.B.C. 1996, c. 250, and would not be
bound to adhere to the terms of a covenant that was not registered
when the land was transferred to them. However, despite their lack
of knowledge, the Court found that Janda and BC Retail were not
protected from the unregistered interest by section 29 of the
Land Title Act, because of the structure of the
transaction they used to purchase their interest in the lot.
How did the structure of the transaction change things? As far
as the land title office was concerned, the ownership of the
Boitanio Mall lot was never transferred since Janda only obtained
the unregistered, beneficial interest from the General Partnership,
and BC Retail had remained the registered owner on title since
2004. Since the Land Title Act is based on registration,
only a registered owner, not a beneficial owner is entitled to the
protections of the Act.
Therefore, the Court found that BC Retail continued to remain
bound by its knowledge of the existence of the restrictive
covenant, notwithstanding its erroneous removal by the land title
office, and the fact that the present principals of BC Retail and
Janda did not know about the restrictive covenant. The Court found
that the knowledge was not "lost" by BC Retail, but
rather either deliberately or negligently not passed on to the new
principals of BC Retail and Janda when the former principals of BC
Retail and the General Partnership transferred their interest.
Although this was an unusual circumstance since interests are
not usually inadvertently released from title by the land title
office, purchasers who obtain only an unregistered, beneficial
interest may wish to pay attention to historical discharges,
especially where important restrictions may exist.
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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