Real Estate Meets Trust Law: Land Registration Ontario Style

What a tangled web it currently is when Ontario real estate lawyers attempt to register transactions involving real property held in trust.1 The electronic registration system ("e-reg") in Ontario has seemingly relevant and valid boxes to tick to reflect the true nature of what is intended to transpire. However, the present Director of Titles' perspective regarding trusts is at odds with the system and practice standards that have developed since the implementation of the e-reg system, not to mention the law.

It is uncontroversial to state that interests in real property can be held personally and in trust under Ontario law. Where a trust is involved, the trustee or trustees hold legal title to the property that is the object of the trust, with the beneficiaries having a beneficial interest. This is all fine and well as an intellectual exercise, but title needs to be accurately reflected in the government's land registration records. Further complicating matters is the fact that Ontario has two systems: registry and land titles, with the former being phased out due to the move to electronic registration. The goal of the land titles system and e-reg is a more reliable record of title.

The registry system is what is referred to as a notice system. This means a wide range of information related to title can be deposited and recorded in the registration system. Unfortunately, this made title searching very cumbersome and potentially prone to error. By contrast, the land titles system represents the actual chain of title and, therefore, is not a notice system. As a result, there are more stringent restrictions about what can be registered on title and how information related to title can be recorded in the registration system.

Historically, land held in trust and subject to the land titles system showed owner capacity as "trustee" to signify legal ownership only. This appears to be authorized by section 62 of the Land Title Act2 ("LTA"). However, Ontario's current Director of Titles, Jeffrey Lem, disagrees and has made some proclamations in the name of protecting property owners that are disturbing to trust lawyers. More specifically, in a recent CPD program regarding real estate law issues, Mr. Lem stated that it is not permissible to register the capacity of "trustee" and any such registrations will be rejected. He further expanded his comments to state that self-to-self transfers (currently used when setting up trusts such as alter ego or joint partner) will not be accepted. Respectfully, the author disagrees that this perspective provides the desired protection or is supported at law.

Take the example of A and B holding a cottage property in trust for themselves during their lifetime (i.e. a joint partner or spousal trust). A and B owned the property in joint tenancy and at least one of them was over 65 at the time they settled the joint partner trust. The trust deed provides that if either or both of A and B are unable to act as trustees, they will be replaced by C and D successively. Further, on the death of the last to die of A and B, C and D are the beneficiaries of the trust.

The first quandary involves the proper way to reflect the existence of the trust in Ontario from a real estate conveyancing perspective. For ease of discussion, it is assumed that the property is in the land titles system at the time the trust is created and always was in the land titles system. One potential option is to do nothing since A and B are still in control of the property. Another is to transfer the property from A and B to A and B but now show them as having the capacity of trustees. It is this second option that has attracted the ire of Director of Titles because the land titles system is not a notice system.

Respectfully, there is notice and then there is legal notice. Black's Law Dictionary defines notice as follows:

notice n. (16c) 1. Legal notification required by law or agreement, or imparted by operation of law as a result of some fact (such as...