“Partition” looks set to become a watchword for the real estate industry as a softening market puts pressure on co-owner relationships.
The sluggish home sales and slight price dips we have recently experienced in Toronto can hardly be characterized as a market crash. But they will be enough to inject some doubts into the minds of joint property owners across the spectrum — from partners in rental businesses to family members holding on to an inherited asset.
Add in higher interest rates and persistent inflation to the mix, not to mention predictions of a global recession on the horizon, and you can see why some co-owners might be tempted to cash in on their share of real estate holdings, even if their partners disagree.
When co-owners’ interests diverge, Ontario’s Partition Act provides an effective mechanism for the division and sale of a property, as the Court of Appeal recently demonstrated when it upheld a motion judge’s order for the sale of a jointly owned commercial propertyin Nutrition Guidance Services Inc. v. Schwartz.
The facts
The Toronto property at the heart of the dispute had been operating as a medical centre for decades by the ownership team, which included two brothers and their wives.
Following a fallout between the brothers, one moved his business out of the building in 2006 and stopped paying his share of the operating expenses.
Most of the remaining owners eventually sued the departed brother in 2021, asking the court for an order that he sell his 25% interest in the property to them for $500,000, based on a $2-million appraisal they had obtained. They also sought reimbursement for 25% of the expenses they had incurred running the building for the previous 15 years without him.
Following a hearing on competing summary judgment motions, a judge found that the parties were tenants in common and ordered the sale of the property under the Partition Act, giving the brother who had moved out the first opportunity to sell it on the open market and dispensing with the consent of the remaining owners to complete the sale for 90 days. The departed brother was also ordered to pay $56,000 to cover his share of the historic operating expenses.
This prompted an appeal by the majority owners, who claimed that the motion judge had erred by dispensing with their consent to sell the property and by failing to find the property was an asset of a partnership.
The results
In a mixed decision, the unanimous three-judge panel upheld the motion judge’s decision to order the sale under the Partition Act, as well as his conclusion that the property was held as a tenancy in common.
However, they allowed the appeal in part, concluding that the motion judge should not have dispensed with the consent of the majority owners to the sale. Noting that the minority-owning brother had not asked for the rest of the owners to be cut out of the process in this way, the Appeal panel wrote that it was procedurally unfair to make the order without allowing both sides to make submissions on the issue.
In addition, the Appeal Court judges found no evidence in the record to suggest the majority owners would attempt to frustrate the sale process sale or any other type of unreasonable behaviour typically required for a court to dispense with a party’s consent to a sale.
Instead of returning the case to the motion judge to rule on a fresh sale process, the Appeal Court panel directed the matter to an associate judge of the Superior Court to supervise the sale of the property under powers granted in Rule 66.02 of the Rules of Civil Procedure.
The lessons
This decision is a reminder of how relatively simple it is to get an order to sell your co-owned property under the Partition Act. When co-owners can no longer work together, courts will not force them to remain as co-owners.
I also find that courts are open to references to an associate justice for supervision of the sale process, which I believe is a great use of court resources. Rather than forcing litigants to file a fresh motion every time they run into problems with issues such as the list price, listing agent, tax liability or expenses, the associate justice can quickly settle any remaining disagreements as they arise.
Although this decision involved a business relationship gone wrong, the partition-and-sale process described in the case is just as effective and efficient for family members who want to part ways over a co-owned property. In fact, most of my Partition Act cases have involved the sale of residential properties co-owned by relatives.