There is a well-known term in law called “a bona fide purchaser for value without notice”. It refers to a person who has purchased a property for some value (i.e., not as a gift) without receiving notice of any other party’s competing interest in such property. The significance of such label in the real estate context is that the purchaser for value without notice will take good and valid title to the real estate despite competing claims of other parties to the property where such competing claims are not made known to the public via registration against title.
Where a person who is not named on title to a property has an agreement or any other right or interest with respect to real estate with the registered owner(s) of such property, there is a concern that such interest may be affected by the actions of the registered owner. For instance, if Person A has a valid agreement that establishes an interest in Person B’s property (e.g., an Agreement of Purchase and Sale, a Joint Venture Agreement, an Option to Purchase Agreement, a Co-Ownership Agreement, etc.), but Person B sells the property or encumbers it (e.g., obtains a mortgage) to the benefit of a third party for value without notice of Person A’s interest, such action may negatively impact Person A’s interest in the property. Without Person A registering a Notice under section 71, or a Caution under sections 71 or 128 (as the case may be), of the Land Titles Act (the “LTA”), such third party may, absent notice of Person A’s interest in the property, successfully deal with the property in spite of Person A’s unregistered interest. Person A may very well have rights to enforce against Person B for breach of contract, but it would be very difficult to argue that Person A has rights against the third party who is a bona fide purchaser for value without notice.
As such, the best way to protect your rights or interest in real estate from being lost, impaired or defeated by a bona fide purchaser for value without notice is by registration of a Notice or Caution against title. Through this registration system, you are in essence notifying the public of your legitimate interest in the property and thereby preventing the registered owner or any third party from dealing with the property without acknowledging that your interest remains outstanding. Such a Notice or Caution would be considered a “cloud” or defect on title to the property that would need to be dealt with (e.g., removed from title) prior to a third party accepting title to it, placing a mortgage against it, etc.
An application to register a Notice of Interest under section 71 of the LTA may be made by any person, whether a party to the agreement that creates the interest or not. It is not necessary for the registered owner to consent to the registration if such registered owner is a party to the agreement. Typically, we see Notices of Interest registered on properties to acknowledge agreements that provide for a charge to secure the payment of a debt or the performance of an obligation, option agreements, joint venture agreements, general assignment of rents, and co-ownership agreements.
A Caution is registered in order to protect the interests of a party claiming to have a proprietary interest in a property. There are several types of cautions, including cautions that prevent dealings with the land without the consent of the cautioner, cautions that claim an interest under an agreement of purchase and sale, cautions that give notice of outstanding taxes, etc. Unlike registering a Notice of Interest, registering a Caution under section 128 of the LTA has the powerful result of actually restricting any dealing with the land (i.e., nothing further can be registered on title without the consent of the cautioner). As such, in cases where you are seriously concerned that the registered owner may transfer the property or encumber it in some way, causing your interest to become impaired, you may want to consider registering a Caution under section 128 if possible.
Should you be in a situation where you have an interest in a property that you believe may be at risk of being defeated or impaired by the registered owner, be sure to consult your real estate lawyer immediately; the timing and technicalities of registration can be critical to ensuring the your interest is protected.