Inventory of Reforms
Report on Section 29(2) of the Land Title Act and Notice of Unregistered Interests
This is the first report issued by the British Columbia Law Institute (BCLI) in connection with Phase 2 of the Real Property Reform Project, a law reform initiative funded by The Law Foundation of British Columbia, the Notary Foundation, and the Real Estate Foundation of British Columbia. In Phase 1, a preliminary scoping study con-‐ ducted with the aid of an advisory committee, BCLI identified a number of aspects of real property law in British Columbia in need of reform. One of these was the uncertainty arising from conflicting interpretations of section 29(2) of the Land Title Act. Uncertainty surrounding the effect of section 29(2) complicates dealings with land in British Columbia and raises the level of risk and expense associated with them.
British Columbia was among the first jurisdictions to adopt the Torrens system of land title registration. The Torrens system was conceived to overcome the anachronisms, expense, and risk of the common law system of conveyancing, which required purchasers to investigate the chain of title. Under the common law system, the rights acquired by purchasers and encumbrancers were subject to pre-existing legal interests, whether or not they knew of them. Purchasers and encumbrancers were also subject to the vagaries of the doctrine of constructive notice, under which they were deemed to know the details of equitable interests they could have discovered by whatever inquiries that a court, with the benefit of hindsight, considered to be reasonable.
British Columbia Law Institute
The cardinal feature of the Torrens system is the public title register, ideally intended to reflect the state of the title to land (the “mirror” principle) and relieve those dealing with a registered owner of the need to look behind it for the purpose of uncovering unregistered interests (the “curtain” principle). In the Land Title Act, the “curtain principle” is implemented primarily by section 29(2). Section 29(2) provides that someone dealing with a registered owner in order to acquire a transfer of land, a charge, an assignment of a charge, or a subcharge is not affected by express, implied or constructive notice of an unregistered interest affecting the land or charge, apart from a very few specified exceptions. Fraud in which the person dealing with the registered owner has personally participated is one of the exceptions. The fraud exception has proven to be a fertile source of difficulty in the interpretation of section 29(2). Unlike its counterparts in the land title legislation of numerous other Torrens jurisdictions, section 29 does not state that knowledge of an unregistered interest cannot be imputed as fraud in itself. This has resulted in two competing lines of case authority in British Columbia on the effect of section 29(2).
The first line of cases is based on portions of the judgments in the 1896 case The Hudson’s Bay Company v. Kearns and Rowling. This line of authority holds that, despite the wording of section 29(2), someone purchasing or taking a charge from a registered owner with actual notice (knowledge) of an existing unregistered interest will acquire the title or charge subject to that unregistered interest. The reasoning used to justify this result, which appears to fly in the face of section 29(2), is that it amounts to fraud to claim priority on the basis of the Act after registering with actual notice of a competing unregistered interest, and a court of equity will not allow a statute to be used as an instrument of fraud.
The second line of cases interprets section 29(2) more literally. They require some element of dishonesty in addition to mere knowledge of a competing interest in order to deprive a person dealing with a registered owner of the protection of the Act. For example, if a purchaser of leased property accepted an assignment of the lessor’s interest from the vendor as part of the sale transaction, and then attempted to rely on the Act to repudiate the unregistered lease after accepting rent, the purchaser might be held to have acted in a clearly deceitful manner amounting to fraud, and therefore would be bound by the lease. This view of fraud under the land title system is similar to the view taken in most other Torrens jurisdictions, including the neighbouring western provinces.
British Columbia courts continue to go in separate ways on the question of the effect of section 29(2). In 2008, the Court of Appeal left the question open in Lee v. Ling, as the facts did not compel the court to rule in favour of one interpretation over the other. As a result of the unsettled case law, it is not possible to give an unqualified title opinion when a purchaser has received some indication of the existence of an unregistered interest, or an unqualified opinion on the priority of a mortgage if the lender is aware of earlier unregistered interests affecting the title. This state of the law is unsatisfactory. The Land Title Act was intended to create certainty in relation to the ownership of land and interests in land. Without legislative intervention, resolution of the conflicting case law surrounding section 29(2) appears unlikely in the foreseeable future.
This report recommends that the fraud exception be retained, but that the Land Title Act be amended to provide that mere knowledge of an unregistered interest cannot in itself be treated as fraud. British Columbia’s land title system is a unique blend of equity and Torrens principles, however. This unique blend of principles would be overturned if considerations of fairness were subordinated completely to conclusiveness of the register. The report also recommends amending the Land Title Act to include two new exceptions to the general rule in section 29(2).
The additional exceptions would be as follows:
- someone acquiring a transfer or other interest referred to in section 29(2) from a registered owner for value who obtained actual knowledge of an earlier unregistered interest before entering into a legally binding agreement with the registered owner would acquire the title or other interest subject to the unregistered interest;
- someone obtaining a transfer or other interest referred to in section 29(2) from a registered owner gratuitously (e.g., by gift, under a will, or pursuant to an order under the Wills Variation Act), and who obtained actual knowledge of an earlier unregistered interest before registration of the transfer or other interest obtained from the registered owner, would acquire the title or other interest subject to the unregistered interest.
This summary was last reviewed in Aug 16, 2012