Lawyers, and persons seeking counsel from lawyers in connection with the acquisition and disposition of real estate interests, need to have an understanding of the meaning of the word "title". Almost equally important is for such persons to have an understanding of the meaning of the expression "marketable title". This is essentially due to two reasons:
- usually - although not always - purchasers and mortgagees will require (or expect) their lawyers to provide a legal opinion on the viability of the title being acquired (or mortgaged); and
- pursuant to the contracts that they enter into with persons acquiring real estate interests, title insurance companies will undertake to indemnify the acquiring party from loss or expenses incurred where the acquired title is not marketable. What is key is what defects or potential defects in a title, as defined in the insurance policy, result in the title being not marketable (thus leading to the insurer's obligation to indemnify where there is resulting loss or costs to remediate).
As best as this writer can determine:
- "title" is the word used to describe the "bundle" of rights (and essentially, the "soundness" of those rights) and the obligations which the law recognizes (and presumably the Courts will uphold in one way or another) which are held by the person who currently exercises dominion over a particular parcel of realty (or other real estate interest). In other words, "title" corresponds to the concept of "ownership". The best possible title that one could obtain would be one which gives the title holder virtually unlimited dominion over, under and upon his/her/its realty interest. Thus if a person has what I might call "unbridled" title, that would mean that such person can occupy or possess the land to the exclusion of others, use the land in any manner desired without regard to the interests, position and sensibilities of neighbours, and for that matter, any governmental authorities, and, can take whatever is desired to be taken from under, upon or over the land without any restriction. Clearly n the present modern era, such "unbridled" title is impossible to obtain.
- "marketable title" is usually defined in a manner which this writer has always considered as being somewhat peculiar. It appears to mean the situation where one has a title where the title holder can legally require a purchaser or a mortgagee to accept and take a conveyance (or mortgage) of the title. This makes sense where, for example, a seller can require a purchaser to accept and to take a conveyance of the title in accordance with what the parties have agreed to in their sale and purchase contract. The problem is that each sale and purchase contract (or loan agreement calling for a mortgage) may be - and often is - different from what other parties have agreed to in similar circumstances. For example, I might agree to buy your property even though there is a chance that someone else might have a better claim to ownership to the property than you do. Or, I may be agreeable to buying your property, even though it is burdened by certain easements or restrictions benefitting other neighbouring property owners and correspondingly "burdening" your property. If I wasn't so agreeable (in either of these situations), then, presumably, based on the foregoing definition, your title would be "unmarketable". But if I was so agreeable, your title would be, as between you and I, "marketable". This would be academic except for the fact that - as aforementioned - what is and what is not "marketable title" is usually specified in or ascertainable from the "fine print" in a title insurance policy and is determinative of whether or not, the insurer will indemnify the insured party(s) for loss.
In the recent case of MacDonald v. Chicago Title Insurance Company of Canada (Ontario Court of Appeal, judgement rendered December 3, 2015, hereinafter, the "MacDonald Case"), the Appeal Court was asked to interpret certain provisions of a title insurance policy (the "Policy") which the insurer (the "Insurer") issued to MacDonald (the "Insured"), in connection with the Insured's purchase of a residential property in Toronto (the "Property"). The Insured had purchased the Property without knowing that the Insured's predecessor in ownership had effected certain construction/renovations to the Property, without first obtaining the required building permit, the work having been done contrary to building requirements which left the Property in a dangerous condition. A municipal remediation word order was issued for the Property, but as is ordinarily the case, the work order was not recorded against the title to the Property. After moving in, the Insured discovered the problem and made a claim against the Policy for indemnification for remediation and related costs. The Insurer denied the claim.
The question between the parties was whether or not the Insured's title was "marketable". The Insurer argued that, based on a correct reading of the terms of the Policy, the existence of the construction defect and work order did not make the Insured's title unmarketable.
The Court rejected the Insurer's position and held that the Policy covered the Insured. In reaching this conclusion, the Court made several points, namely:
- The Insurer argued that the wording of the Policy was such that to be unmarketable, the work order would have had to have been recorded against the Property's title. The trial court agreed with this position and also was of the view that the coverage wording in the Policy was ambiguous. The trial court additionally concluded that "defects" such as the Property's work order normally appeared on title. The appeal Court strenuously (and quite correctly) disagreed, pointing out that in fact, most defects in the nature of work orders from government authorities do not regularly appear on title.
- The appeal Court emphasized the need for more or less standard form and often mass produced contracts (like title insurance policies) to be interpreted liberally and consistently.
- The Insurer also argued that as long as the Insured was, at least theoretically, able to resell the Property, the Insured's title was marketable. This, notwithstanding that a policy holder with a substantial defect (like the one in the MacDonald Case) would no doubt incur costs of remediation and/or a reduction in the price that the next buyer would be prepared to pay. Thus the Court, in effect, held that what amounts to "title" to realty is more than merely the right or rights to "dominion" (ownership). "Title" also extends to other rights (and obligations or limitations) pertaining to use and enjoyment of one's real property.
- The appeal court (in this writer's opinion, very correctly) pointed out that if title insurers were able to escape their indemnification obligations on the basis that all possible "defects" which would normally be considered to otherwise adversely affect one's title, were excluded from the meaning of "unmarketable title" - because they weren't registered on title - the real estate industry (including buyers, sellers, real estate brokers and lawyers) would be thrown into a chaotic and difficult situation. The reason why most persons acquiring interests in real estate purchase title insurance is to avoid having to have their lawyers conduct time consuming, expensive, and frequently unsatisfactory searches and investigations pertaining to "off-title" problems or potential problems.
It is interesting to note that at least one title insurer doing business in Canada has recently issued clarification as to its policy coverage in light of the MacDonald Case. Indeed, this insurer has stated "that "unmarketable title" is not created by matters relating only to the physical condition of the Land". Accordingly, counsel advising persons wishing to acquire interests in real estate should be aware of the fact that, notwithstanding the decision in the MacDonald Case, title insurers (or at least some of them) may very well "fine tune" their policy wordings so as to unequivocally exclude "physical defects" from their coverages, including physical defects which are the subject matter of government remediation orders, whether or not registered on title.