April 24, 2017
A case study: Importance of contract terms

A case study: Importance of contract terms


Rob Kennaley In the early 2000s, a husband and wife owned a cottage on lakefront property northwest of Perry Sound, Ont. They severed the land to create a vacant lot, and gave that lot to their daughter. The lot they gave away had road access, while the lot they retained did not. The parents did not retain or place an easement over the daughter’s lot when the transfer was made, and accessed their cottage through adjoining lands on the other side, where they operated an inn. Although the parents had talked about addressing the issue (and even started down the road with draft documents), this never occurred. Years later, the inn was sold and, again, no right of access to the ‘middle’ lot was retained or granted.

In 2015, the parents’ bank was taking steps to sell the middle lot, which had no road access, and was land-locked, except for access from the water. The bank brought an application for an order declaring that an “easement of necessity” existed over the adjacent property, in favour of the cottage lot.

The applications judge granted the easement based on necessity because, although there was access from the lake, that access was “impractical” and did not provide a “viable, or practical, means of access.” The daughter, who knew the cottage lot would be sold by the bank and didn’t want strangers accessing her property, appealed. 

The starting point for the Court of Appeal was that, because the case involved a grantor, the test was strict necessity. This, based on well-established case law, was to ensure that grantors of land cannot resile from the terms of their grants. The Court of Appeal held that an easement of necessity will only be found if an easement was absolutely necessary in order for the grantor to be able to access the property at the time of the grant. The Court further noted that water access to property historically has defeated a claim of necessity, regardless of how inconvenient it might be. The Court held the test to be whether or not the water access was ‘strictly impossible,’ not ‘practically impossible.’

The bank argued, based on a Nova Scotia decision, that the Court should recognize an easement of necessity as a matter of public policy — because it is in the interests of public policy that land be used, rather than rendered useless. In rejecting the argument, allowing the appeal and refusing to grant an easement, the Court of Appeal held that: “easements of necessity flow from the intentions of the parties to a grant, not from public policy. Put another way, public policy does not provide an independent basis for a court to recognize an easement of necessity regardless of the parties’ intentions in particular circumstances.”

In other words, the Court of Appeal looked to the grant itself towards determining the intention of the parties at the time of the grant. The Court applied the test of strict necessity because grantors are expected to include easements in the grant if that is their intention. The Court would not look behind the documents to determine another intention, and would not apply public policy arguments to later create an easement because the effect of the grant was to make an adjoining parcel practically, though not strictly, impossible.

The lesson to be learned is consistent with a message we have been delivering in these columns, from time to time, over the years: the contracts we draw up or agree to are important because they may be strictly interpreted in the event of a dispute. Be it in contract negotiation or in succession planning, we should never presume that, because everyone is getting along well now, they will get along in the future. The time to plan to ensure that everyone is on the same page is, indeed, at the outset — when everyone is getting along and before any problems arise. 

Furthermore, and as we have written in previous columns in relation to regulatory enforcement, contractual notice provisions and tendering agreements, the Court of Appeal in Ontario has telegraphed its intention to, all things being equal, hold parties to the strict terms of their agreements. This is another example of such an approach. While the Courts in other jurisdictions may take a different approach in some circumstances, it is nonetheless important that we do what we can to get our contracts right, understand what the contracts say, and then follow those contracts, so we can avoid a strict interpretation against us in the event something goes wrong.

New firm is born

I also have an announcement this month. After developing my construction law practice for 20 years with Andy McLauchlin of McLauchlin & Associates, I have opened my own firm, Kennaley Construction Law. Our goal is to embrace the ‘culture shift’ we have been writing about, and which was called for by the Supreme Court of Canada in the way we practice law in Canada. We will continue to write in this space and thank all of our readers for this opportunity. 
Robert Kennaley is with Kennaley Construction Law, a professional corporation practicing construction law out of offices in Toronto and Simcoe, Ont. He speaks and writes regularly on construction law and contract issues and can be reached at 416-700-4142, 519-426-2577, and at rjk@kennaley.ca. This material is for information purposes and is not intended to provide legal advice in relation to any particular fact situation. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.