If you have ever considered how the law deals with tenants in common who are parties to a co-ownership agreement, during a partition and sale of a property, look no further. The Ontario Superior Court of Justice recently addressed the issue in Krizans v. Skurdelis.

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David Skurdelis was the owner of a rental property at 371 Brock St. in Kingston, Ont. On Nov. 23, 2012, Victor and Karen Krizan purchased a 50-per-cent interest in the property and signed into a co-ownership agreement with Skurdelis. After some time, significant issues arose over how Skurdelis was administering the property and the Krizans and Skurdelis reached an agreement to sell it in late November 2018.

Notwithstanding their agreement to sell, Skurdelis’ continual failure to market the property or hire a Realtor forced the Krizans to commence an application before the court requesting a court order for the listing and sale of the property.

The court evaluated the evidence and arguments advanced and found the following:

Partition

A tenant in common has a right to partition or sale of a property under the Partition Act. There are very limited circumstances in which a court may decline to order a partition or sale under s.2 of the act (such as in the case where it would conflict with the parties’ agreement regarding a property or where it would be practically impossible to subdivide a particular lot). In this case, the order for the sale of the property did not conflict with Skurdelis’ rights under the agreement, particularly since by November 2018, both parties had already agreed to sell the property.

Right of first refusal

Under the parties’ co-ownership agreement, there was a section that plainly stated the right of first refusal for one party to purchase another party’s interest in the property only arises where one party wishes to divest itself of their interest in the property. The appeal court noted that the

application judge was aware of and appropriately considered this provision. He correctly held the right of first refusal did not apply here since the Krizans wished to sell the property and not to divest themselves of their interest in the property. As such, the right of first refusal provision did not apply and Skurdelis did not have the right to first refusal.

Accounting

While there was no provision in the co-ownership agreement stating that an order of accounting was necessary prior to the sale of the property, the evidence before the court indicated that both parties clearly understood an accounting order would follow the sale of the property. Thus, any accounting issues (such as how much each party was entitled from the sale proceeds) could be resolved at a future date.

Net proceeds

The appeal court found that the application judge’s only error was ordering the net proceeds of the property’s sale be paid to the Krizans. This was contrary to the co-ownership agreement, which required net proceeds be held in an interest-bearing trust account. The appeal court overturned this aspect of the decision and directed that the net proceeds following the sale be held in an agreed interest-bearing trust account.

After reviewing all of the evidence, the court agreed that the property should be listed and sold pursuant to the Partition Act and the net proceeds be held in an interest-bearing trust account.

What does this mean for prospective tenants in common?

An owner of real property (whether as joint tenant or tenant in common) has a right to partition or sale under the act if that party no longer desires to maintain their interest in the property. If the other owner(s) do not agree, there are very few exceptions that will allow a court to prevent a sale.

In the case where the parties’ relationship is governed by a co-ownership agreement, the court will be very reluctant to make an order that conflicts with clear terms of agreement.

Moreover, a tenant in common will not automatically be entitled to a right of first refusal since this right will only arise under the specific conditions clearly spelled out in an agreement. Certain matters like accounting and the net proceeds of the sale of a property must also be clearly outlined in an agreement in order for it to have the intended effects. Prospective tenants in common should carefully read their co-ownership agreements in order to understand their rights and obligations and seek independent legal advice before signing.

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