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Supreme Court of Canada Upholds Common Law Rule That Positive Covenants Do Not Run With The Land.

In the 2016 decision in Heritage Capital Corp. v. Equitable Trust 2016 SCC 19, the Supreme Court of Canada (‘SCC’) held that Equitable Trust was not entitled to payments under the Historical Resources Act (HRA) as part of an incentive agreement the City of Calgary had with the land’s previous owner.

In 2004 the City of Calgary designated land owned by Lougheed Block Inc. a “Municipal Historical Resource.” As part of this designation, the city agreed to pay 3.4 million in 15 annual installments to compensate Lougheed Block for the restrictions caused by this designation. This agreement was registered as a covenant on the land owned by Lougheed Block. Lougheed used this agreement as security for loans from Equitable Trust and Heritage Capital Corporation. Lougheed Block then defaulted on the loan. The land was then sold via a judicial sale where it was purchased by 604 1st Street S.W. Inc.

After the sale, a dispute arose over whether the HRA created a positive covenant that would run with the land and if the rights to the incentive payments were therefore assigned to the buyer of the land. Upon appeal to the SCC, the issue centered on the degree to which the HRA created an exception to the common law rule stating that in most circumstances positive covenants do not run with the land and therefore are not automatically assigned upon the sale of a property. The SCC held that the HRA created an exception to the common law rule only in specific circumstances where they favored the municipality. Therefore Lougheed Block did not automatically assign the rights to its incentive payments when it sold the land.

In this case, the SCC makes a clear statement that statutory exceptions to common law rules must be narrowly interpreted. Statutes that create exceptions to the common law must do so “clearly and unambiguously.”

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