Recent Decisions from the Court of Appeal with Respect to Restrictive Covenants

The British Columbia Court of Appeal has issued two recent decisions which provide important insight into the ways local governments may utilize restrictive covenants to manage risk and regulate specific uses of land.

1.0 Rai v Sechelt, 2021 BCCA 349

The appeal in Rai v Sechelt (District), 2021 BCCA 349 [Sechelt] concerned whether a covenant registered pursuant to section 219 of the Land Title Act, RSBC 1996, c 250 [LTA] authorizes the inclusion of a release of liability within the terms of the covenant. At the Supreme Court level, the chambers judge had concluded that section 219 did not authorize the inclusion of a release based on the “implied exclusion rule” as section 219 of the LTA explicitly permits an indemnity but is silent as to a release.  The implied exclusion rule provides that where the piece of legislation includes a list of permitted items, anything not listed is implied to have been intentionally excluded.

The BC Court of Appeal disagreed with the chambers judge’s analysis. Section 219 of LTA is part of a statutory scheme for management and allocation of risk. The Court considered that the choice of the broad language in section 219(2)(a)(i), that a covenant may include “provisions in respect of the use of the lands”, demonstrated an intent to capture a wide variety of covenant terms. Accordingly, the Court of Appeal concluded that the intention of the legislature was to permit the inclusion of a release in a section 219 covenant as a provision “in respect of the use of the lands”.

The Court also went on to address the implied exclusion rule argument that, if a release was intended to be permitted, then it would have been listed within section 219. The legislature had specifically included an indemnity as a permitted term of a section 219 covenant as it was a positive obligation which, at common law, is not permitted in a restrictive covenant. The specific inclusion of an indemnity clause removes any doubt that section 219 is a broad risk management tool available under this statutory scheme. The Court further commented that authorizing an indemnity but not a release would “result in an absurdity”, as it would effectively require an owner to indemnify the covenantee for the financial consequences of its negligence.

In interpreting a release in a section 219 covenant, the Court held that the scope of the release will be construed based on the factual matrix known to the parties at the time it was drafted. The Court of Appeal confirmed that a broadly drafted release may cover unknown claims, and “does not need to particularize with exact precision the claims that fall within its scope”. Accordingly, in the specific circumstances of the Sechelt case, the Court of Appeal concluded that the section 219 covenant, which had been registered as a condition of subdivision approval, had been drafted to have a broad scope, covering all losses arising from the construction of single family dwellings within the subdivision and all claims arising from the use of the subdivision lands, including subsidence, loss of slope stability, and settlement of roads or buildings. In the circumstances, all claims brought against the District of Sechelt were held to have been released by the covenant and the actions against the District were dismissed.

The decision is an important confirmation of legal rights for local governments and other public authorities which routinely use releases in the terms of their section 219 covenants as a form of managing risk.

2.0 Kent v Panorama Mountain Village Inc., 2021 BCCA 332

In Kent v Panorama Mountain Village Inc., 2021 BCCA 332 [Kent], the Court of Appeal addressed the issue of vagueness or uncertainty of provisions in restrictive covenants that require an owner to enter into a subsequent agreement with respect to the use of their land or property.

This issue has previously been considered by the Court of Appeal in 1120732 BC Ltd. v Whistler Resort Municipality, 2020 BCCA 101 [Whistler] and 585582 BC Ltd. v Anderson, 2015 BCCA 261 [Anderson]. In Anderson, the Court of Appeal held that a restrictive covenant which required the owner to enter into a further agreement with unknown terms and without a mechanism for dispute resolution was void pursuant to section 35 of the Property Act as it was too vague and uncertain. In contrast, the Court in Whistler distinguished the Anderson case, as entry into a rental pool management agreement was not a mandatory term of the covenant. The Section 219 covenant in Whistler did not require a unit owner to enter into an agreement; rather, it required the owner to place their strata unit into a rental pool subject to municipal approval for those days that the strata unit was to be rented to the public.

Similar to both the Whistler and Anderson case, a restrictive covenant had been registered on title in Kent as a tool to regulate use of the lands by requiring all rentals be operated via a rental pool. The resort complex in Kent was structured to operate on a “condominium hotel” model. Pursuant to the terms of the covenant, a strata owner was only permitted to rent their unit to the public if they used the building’s rental management system. The Court of Appeal concluded that the terms of the restrictive covenant were not uncertain because, similar to the Whistler case, the requirement was merely to place the unit in a rental pool, not to enter into a rental agreement. Although the Court acknowledged that a rental agreement was a likely downstream consequence of entering into a rental pool, the covenant did not direct that they do so.

In the reviewing these types of covenants, the Court will ultimately look to whether the parties have reached an agreement on the essential terms – i.e. whether the covenant is more than an agreement to agree. If the contract is merely agreement to agree without a mechanism for resolving disputes – it is void for uncertainty.

The takeaways from the Kent case are twofold. First, if a covenant is intended to be used to govern a specific use of land through an agreement, the agreement should be incorporated into the terms of the restrictive covenant. If the terms are not settled, the covenant should include a mechanism for resolving disputes over the terms of the agreement. Second, if the intention of the restrictive covenant is, alternatively, to regulate a certain use of land by means that will, practically speaking, require the entering into of an agreement, this will be permissible so long as there is no explicit requirement to enter into an agreement.