What is a Certificate of Pending Litigation?
Real estate transactions can be as complicated as they can be simple. If a property is being purchased and sold in a straightforward transaction between two parties, the transaction should be relatively quick and painless. If, however, there are multiple parties with an interest in the property, then things may become more complicated and there is greater potential for a dispute.
In the event of a dispute pertaining to real estate, lawyers will often use a Certificate of Pending Litigation (or “CPL”) to ensure that the property is not sold or otherwise dealt with until the dispute is resolved. A CPL is a mechanism used by the Court, on the request of a party, to ensure that any future dealings with the property – from sale to financing to mortgaging etc. – are put on hold until the dispute is resolved.
A CPL is effectively a notice to the world that there is an issue with title to the property that needs to be dealt with before things can go any further. When obtaining a CPL, a party does not have to show that they will be successful in any litigation over the property – just that there is a triable issue with respect to their claim for an interest in the property.
CPL’s can be complex. We are here to provide you with answers to a few of the basic questions that regularly come our way for clients who may need assistance with obtaining a CPL.
When is a Certificate of Pending Litigation helpful?
A CPL may have several uses in ‘pressing pause’ on a piece of property until a dispute between the parties can be resolved. If one party is refusing to complete a sale that has been agreed to, a CPL may be an appropriate mechanism to ensure that the owner does not deal with the property until the dispute can go before the courts. Similarly, if there is a dispute over the ownership of a property that is being sold, a CPL can ensure that the dispute is resolved before the sale proceeds, or, in the alternative, ensure that the sale proceeds are available for distribution once such dispute has been resolved.
A CPL can also be a helpful tool in cases of fraud. Fraud is a very real risk in real estate transactions. Fraudsters have devised complicated schemes over the years where mortgages or even title to the property is transferred through various parties, often to escape creditors. For example, an owner may sell a valuable property to their spouse or close relative for pennies on the dollar to escape having that property seized and sold by creditors at a later time. In such situations, it is quite common for creditors to register a CPL on title to the property to ensure that the property is not disposed of or further burdened while their claim for an interest in the property is resolved.
What will courts look at before granting a Certificate of Pending Litigation?
For any party to register a CPL on title to a property, they must first obtain permission from the Court.
In determining whether or not a party is entitled to a CPL, the Court will apply a two-part test:
- The Court will first determine whether there is a triable issue with respect to the moving party’s claim for an interest in the property.
- If the Court is satisfied that there is a triable issue with respect to the moving party’s claim for an interest in the property, the Court will then consider whether it is fair and equitable to grant a CPL taking into consideration a variety of factors.
To satisfy the first part of the test, a party is only required to show that there is a triable issue with respect to their claim for an interest in the property. Simply said, a party is not required to show that they will be successful at trial. Rather, they must only show that, at first glance, they have a viable claim to an interest in the property. In the decision of 2254069 Ontario Inc. v. Kim, 2017 ONSC 5003, the Court went as far as to say that there can be a “triable issue” even if the moving party’s evidence appears weak.
If a party seeking a CPL is successful in establishing that there is a triable issue with respect to their claim for an interest in the property, the Court will then consider whether it is fair and equitable to grant a CPL. In determining whether the granting of a CPL is fair and equitable, the Court will take into consideration all relevant factors including the following:
- Whether damages would be a satisfactory remedy such that recovery of the property is not overly important;
- Whether a party will be able to recover an award of damages, if awarded;
- The balance of convenience, or potential harm to each party, if the CPL is or is not granted;
- Whether the CPL appears to be for an improper purpose;
- Whether the interests of the party seeking the CPL can be adequately protected by another form of security; and
- Whether the moving party has commenced the proceeding with reasonable diligence.
It should be noted that the above list is not exhaustive, and the Court will consider all relevant factors.
Overall, a CPL is a mechanism that parties should strongly consider whenever they are involved in a situation where their claim to an interest in property is being disputed. If you are encountering significant problems with your real estate transaction, a CPL may also be the appropriate solution. Our lawyers at Pavey Law LLP have handled complex real estate litigation matters in the Cambridge, Kitchener, and Waterloo area, and would be pleased to assist you through your transaction. Contact us today to learn more about how we can help protect your interests.