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Real Estate Transactions: Exclusive Use Servitudes Deemed Invalid – Real Estate and Construction – Canada – Mondaq News Alerts

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While exclusive use clauses remain common in leases, they can no
longer be drafted in the form of servitude agreements in
transactions.

In April 2020, in the case of Société
immobilière Duguay Inc.
v. 547264 Ontario
Limited
1, the Court of Appeal of Quebec
ruled in favour of dismissing a Superior Court
judgment2, thereby granting an application for
declaratory judgment and striking off “exclusive
use
” clauses drafted in the form of servitude agreements
restricting the types of business that could be carried out on a
property. As a result, this case puts an end, in commercial
transactions, to the use of servitude agreements to protect certain
exclusive businesses or commercial uses from third parties in a
given location.

Exclusive use clauses have long been included in leasing
agreements, such as those in shopping centers, to define the
permitted uses of the leased property and prohibit or limit one
tenant from carrying on the same type of business or
principal use” as another tenant. The bottom
line is to protect the market within a property and ensure the
commercial success of all tenants. The Civil Code of Quebec
(C.C.Q.) does not currently define or regulate such clauses
directly; these are usually the result of negotiations between the
landlord and the tenants. Exclusive use clauses have also been used
in commercial real estate transactions, in the form of servitude
agreements. Under Quebec civil law, Article 1177 C.C.Q. defines a
servitude as “a charge imposed on an immovable, the
servient land, in favour of another immovable, the dominant land,
belonging to a different owner
.”

The Duguay matter is the most recent case in which the
Quebec courts had to determine whether exclusive use agreements in
commercial real estate transactions were valid in civil law. In
this case, the Respondents owned a shopping centre and various
contiguous or nearby lots, which they leased for commercial
purposes. In 1998 and 2000, the Respondents sold two of those lots
to a third party for the purpose of opening a clothing store. The
notarized deed of sale included a servitude agreement stipulating
that the buildings of the shopping centre owned by the Respondents
could not be used to carry on business activities that would
compete with those of the buyer (i.e. a family clothing store),
while the properties acquired by the buyer could not, for their
part, be used for the principal business activities then taking
place at the Respondents’ shopping centre and on the
neighbouring lots they owned (i.e. a grocery store, drugstore,
movie theatre and department store). In 2012, the two properties
were sold by the initial buyer to the Appellant, with the new deed
of sale providing that both properties remain subject to the
exclusive use servitudes set out in 1998 and 2000. Following this
subsequent sale, the Appellant asked the Superior Court to declare
that the “servitude agreement” was not enforceable and to
order its striking out on the grounds that it did not constitute
servitudes, but rather, personal obligations.

The Court of Appeal found that, since the purpose that the
Respondents claimed to be pursuing through these exclusive use
agreements, namely to promote the commercial diversity of their
shopping centre, served largely to ensure that the businesses in
the shopping centre they owned were not subject to commercial
competition, they could not be construed as constituting valid
servitudes under the C.C.Q. The Court of Appeal found that the
rights flowing from these agreements do not relate to the
Respondents’ real estate property, but rather to the
Respondents’ financial and commercial interests.

As a result, although the exclusive use servitude agreements
could be deemed creative in commercial real estate transactions,
the Court of Appeal of Quebec ruled in favour of the Appellant,
finding that such agreements restricting commercial use do not
constitute valid servitudes, as they do not encumber the dominant
land as required by Article 1177 C.C.Q., but only apply to the
servient land. According to the Court of Appeal, these stipulations
must be characterized as personal obligations binding on the first
buyer and the Respondent but not the Appellant as the subsequent
buyer. Moreover, the Court of Appeal found that the Respondents had
not demonstrated that the Appellant agreed to undertake these
agreements as personal obligations when purchasing the
properties.

Footnotes

1 Société immobilière Duguay inc. v.
547264 Ontario Limited, 2020 QCCA 571

2 Société immobilière Duguay inc. v.
547264 Ontario Limited, 2018 QCCS 2099 (CanLII)

Originally published by August-September 2020 issue of
Canadian Lawyer InHouse magazine

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Real Estate and Construction from Canada

Construction Dispute Resolution In Ontario

Miller Thomson LLP

The Canadian Construction Documents Committee (“CCDC”) forms of contract provide for a dispute resolution process that is generally contained in Part 8 of the contract.

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Why the London, ON Real Estate Market Continues to Thrive – RE/MAX News

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London was considered by many to be Ontario’s best-kept secret. It was a city with everything you would want: affordable housing, jobs and even lauded as the brain capital of province. With more people desiring to escape the big city and find refuge in an urban locale with a small-town charm, London’s popularity is skyrocketing. This is great news for the London real estate market.

Recent data point to an incredible recovery in the housing industry in the wake of the COVID-19 public health crisis. With tight supply and growing demand, the Canadian real estate market is enjoying record-setting numbers in every possible category. All the early forecasts suggest that London can sustain this trend to finish the year and head into 2021.

Although the coronavirus pandemic continues to threaten the broader national recovery, accommodative monetary policy and pent-up demand are driving the country’s real estate industry. So, what is going on in London, Ontario?

Why the London, ON Real Estate Market Continues to Thrive

London is witnessing some strong Fall market activity as the city basks in the afterglow of the best performance for the month of August in more than 40 years, followed by a record-breaking September. According to the London and St Thomas Association of REALTORS® (LSTAR), 960 homes were sold in September, the best September since 1978! Local headlines also spotlighted that the average home sales price reached $521,883, up a whopping 98 per cent compared to the same time five years ago.

Industry observers also point out that homes are being exchanged at a faster pace. In London, the median number of days that a home sat on the market fell from 12.5 in July 2020 to just 10 days in August and a mere eight days in September.

Demand is gaining steam, with interest booming in the market for condominiums, single-detached homes and everything in between. This has sparked interested prospects to submit bids over the asking price, and this could continue to be the norm if demand remains strong and inventories remain low.

“The strong momentum experienced during the summer months continued through September,” said 2020 LSTAR President Blair Campbell. “Similar to many other housing markets across Canada, many are still playing catch up from the COVID-19 lockdown we had during the spring.”

Campbell noted that “Each of the five major areas in LSTAR’s jurisdiction posted gains, led by Middlesex with average sales price of $575,785. Again, it’s important to note this figure encompasses all housing types, from a two-storey single-detached home to a high-rise apartment condominium.”

Campbell said in a recent interview with CTV News, that nobody is really surprised by the developments. Instead, real estate agents and the broader market are surprised by how quickly it occurred. But what is driving this surge in London real estate?

What is Driving London’s Real Estate Market?

After experiencing a brief “pandemic pause” at the height of the coronavirus outbreak in March, the wait-and-see approach was abandoned, and now the pent-up demand is stimulating London’s housing market. Like other cities across Canada, buyers and sellers have returned from the sidelines to take advantage of current conditions and trends.

Since Queen’s Park reopened the province, buyer confidence has swelled, which has been reflected in the latest housing data. Of course, real estate agents are still diligently adhering to public health guidelines. This includes social distancing, wearing face masks, showcasing listing via virtual open houses and facilitating digital paperwork completely online by means of technology.

That said, the second wave is already prompting some local governments to reimpose COVID-19 restrictions, and industry experts say that people on both sides of real estate transactions are looking to get some deals done before any drastic measures transpire. Plus, as market observers understand, cool temperatures and the flu season can impact real estate. With so much uncertainly on the horizon, the market remains hot as buyers and sellers fight to “get in while they can.”

London, like other smaller towns across the province, is witnessing an influx of buyers from the Greater Toronto Area. Although London area home prices have gone up, they remain more affordable than what you can purchase within downtown Toronto, or even other municipalities within the Greater Toronto Area.

Homebuyers are ostensibly using the work-from-home trend to their advantage, no longer tied to live close to their workplace. Plus, with greater investment in public transit within cities province-wide, if professionals needed to travel into the nearest urban centre, there are a greater number of transportation options at their disposal.

Moreover, since more people are spending significantly more time at home amid social distancing measures and remote working environments, a lot of buyers are reconsidering their living space. For example, some seek to upsize to properties that have room for an office, a learning centre for kids, and other features that may not have been important even just a year ago.

As the list of priorities for homebuyers changes, real estate trends are shifting across the country and municipalities like London, Ontario are projected to continue this trend of strong housing demand, tight supply, and swelling real estate prices into 2021!

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Canada real estate: TD Economics sees high home prices holding up in fourth quarter before dropping in 2021 – The Georgia Straight

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Home buyers looking for a bit of a discount may want to wait a little.

A housing report by TD Economics predicts that high home prices will persist for the rest of 2021.

“Regarding prices, we think they’ll hold up at these record levels in the fourth quarter…,” economist Rishi Sondhi wrote.

Then things will start to ease in 2021.

Sondhi explained that tight supply is driving high home prices.

According to the TD Bank economist, the real-estate market is currently in seller’s territory.

The economist noted that the national sales-to-new listings ratio in September “registered a drum-tight reading” of 77.2 percent.

He noted that “markets were the tightest they’ve been in nearly 20 years in September”.

Sales-to-new listings ratio is the number of sales divided by listings.

A seller’s market means that the sales-to-listing ratio is 60 percent or more, or six sales out of 10 listings.

A balanced market features a ratio between 40 percent and 60 percent.

A buyer’s market happens when the ratio is less than 40 percent, which means fewer than four sales for 10 listings.

In a report on October 15, the Canadian Real Estate Association noted that the national average price of a home set a new record in September.

The average price topped the $600,000 mark for the first time at more than $604,000.

In his report on October 15, Sondhi predicted “some easing is anticipated” for prices after the fourth quarter of 2020.

This is consistent with Sondhi’s previous report on October 8.

The bank economist noted in that earlier report that “unlike sales, an immediate fourth quarter pullback is unlikely” for prices.

 “In fact, another (modest) gain could be in the cards,” Sondhi wrote.

“After the fourth quarter,” Sondhi predicted on October 8, “Canadian prices will likely drop through the first half of 2021 by around 7%, before regaining some traction later next year.”

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Brookfield weighs US$3B life-sciences real estate portfolio sale – BNN

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Brookfield Asset Management Inc. is exploring a sale of its life-sciences real estate portfolio, and seeking about US$3 billion, according to people with knowledge of the matter.

The Toronto-based alternative asset manager is working with advisers to sell roughly 2.3 million square feet of life-sciences real estate it acquired as part of its 2018 purchase of Forest City Realty Trust Inc., said the people, who requested anonymity because the information isn’t public.

A Brookfield representative declined to comment.

Blackstone Group Inc. agreed last week to recapitalize a portfolio of BioMed Realty life-sciences buildings for US$14.6 billion, a deal that will generate US$6.5 billion of cumulative profits four years after investing in the properties.

Life sciences, which includes pharmaceutical, biotech and other medical research fields, is a sector where most staff can’t work remotely. That has stabilized the value of such properties.

Alexandria Real Estate Equities Inc., one of the largest real estate investment trusts that owns on life sciences properties, has fallen 2 per cent this year compared to a 14.6 per cent decline of the Bloomberg U.S. REITs Index.

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