In the realm of property law, caveats serve as a powerful tool for protecting interests in real estate. By registering a caveat on land titles, individuals or entities can assert a claim or encumbrance against a property, effectively signaling to potential buyers, creditors or other third parties that may have an interest in the property that there may be pending legal issues to consider. While caveats can provide a sense of security, it is crucial to remember that they do not suspend or alter the operation of limitation periods. In this blog post, we will review a recent Court of King's Bench decision that serves as an important reminder that compliance with limitation periods remains essential, even in the presence of a registered caveat on land titles.
Before delving into the interplay between caveats and limitation periods, an introduction to caveats may be helpful. A caveat is a legal notice that is lodged with the applicable land registry or titles office, asserting a legal interest or claim in a specific property. ‘Caveat’ is a Latin word meaning ‘let him beware’. It is a notice of a claim to an interest in land and serves as a notice to anyone reviewing the certificate of title that the caveator is claiming an interest in that parcel of land. Common reasons for lodging a caveat include claiming an equitable interest, leasehold interest, protecting a contractual right, or preserving a potential legal claim. In Alberta, caveats are primarily regulated under the Land Titles Act, RSA 2000, c L-4 (Land Titles Act). Once registered, a caveat serves as a notice to third parties that the person or entity registering the caveat commonly referred to as the "Caveator" has a specific interest in the land or that such person or entity is claiming that there may be unresolved issues affecting the property.
Limitation periods, on the other hand, prescribe the timeframe within which legal actions must be commenced. These periods can vary depending on the nature of the claim and are designed to promote certainty, finality, and the efficient resolution of disputes. Failure to initiate legal proceedings within the prescribed limitation period can result in the claim becoming statute-barred, meaning that the right to pursue the claim is extinguished.
While caveats can provide notice of potential claims or disputes, they do not alter the underlying legal framework governing limitation periods. In other words, the mere registration of a caveat relating to a claim does not extend or suspend the time within which a claim must be brought. Parties who rely solely on the presence of a caveat to protect their interests may find themselves facing significant obstacles if they fail to initiate legal proceedings within the applicable limitation period.
This was precisely the issue in the recent case of Scotia Mortgage Corp v Conejero, 2024 ABKB 66 (Scotia Mortgage).
In Scotia Mortgage, the defendant was the owner of a condominium unit. Scotia Mortgage Corporation had registered a mortgage on title to the condominium unit. The defendant owner had failed to pay their mortgage and condo fees. The condominium corporation, which owned and operated the common property, had also registered a caveat against the title for the defendant's condominium fees that had been in arrears (Condo Fee Caveat).
When the defendant defaulted on the mortgage, Scotia Mortgage Corporation commenced foreclosure proceedings. The issue in this case was whether the condominium corporation could maintain the registration of its Condo Fee Caveat. If the Condo Fee Caveat continued to be valid, the claim would have to be paid for the Condo Fee Caveat to be discharged from title as part of the foreclosure sale process. If the Condo Fee Caveat was not valid and was discharged from title, the foreclosure sale could proceed without payment of the outstanding condominium fees owing.
To determine the validity of the Condo Fee Caveat, the Court considered the intersection of the caveat with the limitation period that applied to the claims for outstanding condo fees. Unfortunately, although the defendant's outstanding condo fees dated back to 2018, the condominium corporation had never initiated proceedings to recover these fees. While a caveat had been registered, a claim was never commenced, and the limitation period had expired for these claims. Therefore, the Court considered whether the caveat could be maintained despite the fact that the limitation periods relating to the alleged condo fees owing had expired.
First, the Court considered whether the legislative foundation for the caveat at issue could assist. The Condo Fee Caveat had been registered under Section 39.4 of the Condominium Property Act, R.S.A 2000, c. C-22 (CPA), which establishes that a condominium corporation may register a caveat against title to a unit if there are unpaid condo fees levied against that unit. The Court considered whether because of this statutory entitlement to register a caveat, a limitation barred claim for condo fees could continue to be registered on title.
The Court decided that despite the statutory entitlement to register a caveat, a limitation barred claim could not remain registered on title. The Court relied on the unreported decision of Justice Arcand-Kootenay in Condominium Corporation 0220695 v Scotia Mortgage Corporation. In that case it was determined that a caveat must relate to a valid claim. A party no longer has a valid claim if it is limitation barred. Therefore, when a limitation period for a claim has expired, the caveat ceases to relate to a valid claim, and therefore does not meet the legislative requirements under the CPA.
Since, sensibly, a caveat relating to an invalid claim cannot remain registered on title, in Scotia Mortgage, the Court held that the Condo Fee Caveat must be discharged from title—confirming that a limitation-barred claim cannot be preserved through the registration of a caveat. As a result, despite the registration of the Condo Fee Caveat, the condo corporation lost its opportunity to recover the condo fees upon the sale of the condo in the foreclosure process.
The Scotia Mortgage decision offers an important reminder to those that rely on caveats and land titles registrations relating to potential claims (or those that are subject to these registrations). Scotia Mortgage related to a caveat protecting an entitlement to condo fees. However, the same result would likely apply to other real estate industry participants. For example, Section 106(1)(c) of the Land Titles Act expressly sets out that encumbrances on title will be discharged upon proof that the right to recover any money secured by the encumbrance has been extinguished because of the Limitations Act, RSA 2000, c. L-12.
Thus, mortgages and encumbrances, vendors' liens, purchasers' liens and builders' liens that give notice of a potential claim or amount owing, similarly fail to prevent the operation of the applicable limitation period and cannot be maintained once the limitation period lapses.
In navigating the complexities of property law, it is essential to recognize that caveats are not a panacea for protecting legal interests. While they can provide valuable notice of potential claims or disputes, compliance with limitation periods remains paramount. Parties should exercise diligence in understanding and adhering to the applicable limitation periods, ensuring that their rights are safeguarded and preserved. The nuances of the intersection of caveats and limitation periods should be carefully considered, to allow stakeholders to navigate property transactions and disputes with confidence and the foresight necessary to best preserve and protect claims.
If you would like to learn more about how the Scotia Mortgage decision may affect your business, we invite you to contact the authors of this blog post or members of our Commercial Litigation or Commercial Real Estate groups.