Earlier this year, we discussed the decision of the BC Supreme Court in Pan Canadian Mortgage Group v. 679972 B.C. Ltd. in our publication Real Estate MATTERS.  That decision was significant because it was a rare instance in which a BC court declared that a purchaser’s lien had been established, thereby effectively turning the relevant purchasers into secured creditors.  A purchaser’s lien is an equitable remedy that may arise when a purchaser makes a payment (such as a deposit) toward the purchase price under a contract of purchase and sale.  If the purchase and sale of the property fails to complete, without any fault on the part of the purchaser, then the purchaser may be entitled to a security interest or charge against the property in the amount of the payment.  The BC Court of Appeal has since released the reasons for its decision on appeal, in Pan Canadian Mortgage Group III Inc. v. 0859811 B.C. Ltd., 2014 BCCA 113.

The Pan Canadian case dealt with a development property that had been sold pursuant to foreclosure proceedings prior to completion of a proposed residential development.  While the proceeds of sale were enough to satisfy the claims of the lender, the remaining proceeds were insufficient to satisfy the collective claims of two groups who were left with competing claims of priority to the remaining proceeds.  The first group consisted of purchasers who had paid deposits for townhomes which were never built on the property. The second group consisted of secured creditors who had registered judgments against the property.  At trial, the judge found that the purchasers had established that they had purchasers’ liens because they had provided funds to the vendor for the purchase of land, but the contracts did not complete through no fault of the purchasers.  The parties had agreed that, should the purchasers be able to establish purchasers’ liens, the purchasers’ claims would rank in priority to those of the judgment creditors.

On appeal, the Court of Appeal canvassed the nature of a purchaser’s lien and reversed the trial judge’s decision.  The purchasers were not able to establish a purchaser’s lien because the contracts at issue were, on the facts of this case, not binding contracts for the purchase and sale of townhomes on the property.  In addition, even if the contracts had been binding contracts for the purchase and sale of a townhome, they contained specific clauses which stated that the contracts created contractual rights only and not any interest in land.  The parties had therefore excluded by contract the possibility of a purchaser’s lien, which is an interest in land.  Despite the Court of Appeal having called the purchaser’s lien a “relatively obscure” remedy, vendors who do not wish to be subject to a claim for a purchaser’s lien should ensure that any purchase and sale contract contains a provision that such contract does not create an interest in land.