In a recent case out of
the Supreme Court of BC, Pan Canadian Mortgage Group Inc. v. 679972 B.C. Ltd.,2013 BCSC 1078, the Honourable Madam Justice M. Koenigsberg provided an
excellent summary of the nature of a Purchaser's Lien in dismissing the
assertion of Judgment Creditors that they had priority. The following text from pages 19 to 22; I
have highlighted what I consider a few salient points:
"What
are the Essential Features or Requirements for a Purchaser’s Lien?
[90] A purchaser’s lien is a well-established equitable charge over property that
arises at the time a purchaser of property provides a deposit or funds to the
vendor or their agent in part or whole payment of the purchase price. A
purchaser’s lien is created by equity not
by contract. The law establishing a purchaser’s lien has a long history stretching from at least the mid-1800’s to today. A case similar to the one at bar is
Whitbread & Co., Limited v. Watt, [1902] 1 Ch. 835 at 838. In this case the
purchaser was purchasing a freehold public-house plot on a building estate. The
purchase was to complete as soon as 300 houses had been built on the estate.
The 300 houses were not built. The purchaser sued for a return of their monies
based upon a purchaser’s lien. Lord Justice Vaughan
Williams stated at 838:
...
The lien
which a purchaser has for his deposit is not the result of any express
contract; it is a right which may be said to have been invented for the purpose
of doing justice. ...
[91] One of the first cases to discuss
purchaser's liens is the oft cited case of Rose v. Watson, [1864] 10 H.L.C.
672. The House of Lords found that when a portion of the purchase price for
property was paid the payor obtained a security interest, similar to that of a
mortgagee, equivalent to the funds paid. Lord Westbury stated at 682:
...
.... It
was money advanced upon the faith that the land, the subject of the contract,
would become the property of the Respondent; and being so paid as part of the
purchase-money under the contract, and being paid in advance, on the faith of
the vendor’s performance of the contract, I think that your Lordships will have
little difficulty in coming to the conclusion that those sums of money thus
paid formed principal sums, in respect of which there became a lien from the
time of the payment of them; ... [Emphasis added]
[92] As stated by Di Castri in the Law of Vendor
and Purchaser, 3rd edition, Volume 3 at para. 913, p. 18-20:
...
... The
lien is decreed independently of the contract, which does not give it, but
furnishes the reason for the decree. ...
[93] At the time any payment on account of the
purchase price is made, a purchaser obtains an equitable right to security in
the land to the extent of their payments. This right is immediately vested to
secure repayment of the purchase monies so paid in the event the contract is
not completed through no fault of the purchaser. (Whitbread; Rose; Capital
Plaza Developments Ltd. v. Counterpoint Enterprises Ltd., [1985] B.C.J. No. 321
(S.C.) at paras. 9-11).
[94] Put another way, the courts have found that
the payment on account of the purchase price (whether as a deposit or
otherwise) is not just a partial payment but is security for the completion of
the purchase. If the purchaser fails to perform their part of the contract, the
vendor has security against the funds; if the vendor fails to perform, the
purchaser can recover the funds and is entitled to a lien on the subject matter
of the contract. By virtue of the lien the purchaser is a secured creditor.
(Levy v. Stogdon, [1898] 1 Ch. 478 (C.A.) at 486; J.A.R. Leaseholds Ltd. v.
Tormet Ltd. and Kaye (1965), 48 D.L.R. (2d) 97 (Ont. C.A.))
[95] Di Castri has described the nature of a
purchaser's lien at (Law of Vendor and Purchaser, 3rd edition, Volume 3, at
para. 913, pp. 18-20):
...
Where a
contract goes off without any misconduct or default on the part of the
purchaser, he acquires an equitable lien, on the subject land, in general
commensurate with the purchase money paid. To put this another way, in order to
do justice between a vendor and a purchaser under a contract for the sale of
land, equity gives the latter a lien on the estate by way of an equitable
charge in respect of all payments made on account of the price, interest, and
costs.
While
there is no doubt that an action to enforce a purchaser’s lien is based on an affirmance
of the contract, there appears to be some technical legal question as to the
affirmative right of a purchaser to claim his lien, where he has rescinded the
contract. It is submitted, however, that whether the transaction falls through
by reason of the inability of the vendor to convey as agreed or whether the
contract is rescinded before completion by reason of the vendor’s misrepresentation of a
material fact, in either event, the purchaser’s right to a lien cannot be
affected. The objection is urged that, assuming the right of a purchaser to a
lien, it is abandoned where the contract is rescinded. The argument is that
...
In order
to ascertain the real nature of the exercise of equitable power, it may be
considered in relation to its basis and to the result of its operation. The
basis is the promise of the vendor to convey the land, as and when agreed, and
that meanwhile he is a trustee of the legal title for the purchaser to the
extent of the purchase moneys paid. The extent of its operation is to subject
the land to the execution of a trust, either to convey, where there has been
full performance by the purchaser or to return him his moneys, where the
contract has failed and ceases to be binding through no fault of the latter.
It supplies a remedy where the law falls short of accomplishing full justice.
If equity lays hold of a pretext, or adopts a fiction, in such a case it is not
more than it does in many other cases, in order to enforce a natural right and
to affect a just result.
...
[96] The enforcement of a purchaser’s lien can be sought when there is no ability to
enforce specific performance or where the purchaser does not want specific
performance. If specific performance is available to a purchaser title can be
transferred or the purchaser can elect to claim under the purchaser's lien. In
the circumstances where specific performance is not possible, the purchaser’s equitable interest in the land remains which is
enforceable through the lien. (Rose; Levy; Cornwall
v. Henson, [1899] 2 Ch. 710 at 714; Law of Vendor and Purchaser,
3rd edition, Volume 3, at para. 919, pp.18-26;
J.A.R. Leaseholds Ltd. at para. 28).
[97] The court found that upon paying the monies
the purchaser obtained a purchaser’s lien over the property as a
whole (Whitbread). The principle that the lien will apply to the property as a
whole rather than to the particular portion of the property for which the funds
were advanced was reiterated in the British Columbia case of Lehmann v. B.R.M.
Enterprises Ltd. (1978), 88 D.L.R. (3d) 87 (B.C.S.C.). In this case the
plaintiff was the purchaser of a strata unit in a planned strata development.
He had paid the entire purchase price for the unit to the vendor. The vendor
went bankrupt and did not complete the development and did not file a strata
plan. The court found that the right to the purchaser’s lien was not affected by the fact that the strata plan had not
been registered. The right to the lien was not dependent upon the ability of
the vendor to convey title and the purchaser was entitled to a lien over the
entire development property for the amount paid notwithstanding that the lands
that were the subject of the contract did not exist and specific performance
could not be ordered."
Justice Koenigsberg
applied this equitable principal to find in favour of the parties who
registered purchaser’s liens.
It is a powerful remedy which arises in any circumstance when a purchaser
pays money on a condominium project which is not completed. Developer’s often try to control this dynamic by providing in the purchase and
sale agreement that a purchaser may not register a Caveat/Lien to protect money
which has been paid to the Developer prior to the development occurring. This failure to register can be fatal and it
is suggested that purchasers should not agree to such limitation.
The purchaser’s lien also arises under what is referred to as an Agreement for Sale
(this is distinct from an Agreement to Sell).
In this circumstance a purchaser provides money against the purchase
price and continues to make payments until the full purchaser price is
paid. The title to the property subject
of the sale remains in the name of the vendor and the vendor is not obliged to
transfer the property to the purchaser until all payments are made. In Alberta our Law of Property Act imposes upon vendors the obligation to commence
a foreclosure in the even that a purchaser breaches an Agreement for Sale. This statutory requirement prohibits vendors
from being unjustly enriched. The
property subject of the sale will as part of the foreclosure be required to be
sold and the monies paid by the purchaser are contemplated by the Court in
establishing the redemption period which proceeds the Court ordered sale. The money paid by the purchaser forms an equitable
interest in the subject property and is only forfeited to the vendor and the Agreement for Sale extinguished upon completion of the
foreclosure action.