Protect estates from litigation

For many Canadians, a vacation at a cottage, camp or chalet is a time to bring together family and create memories.

But sometimes family members become emotionally attached to these properties, and that can cause bitter disputes.

“Family members and claimants have […] expectations about those properties that they don’t necessarily document,” says Suzana Popovic-Montag, managing partner at Hull & Hull LLP in Toronto. Unfortunately, those assumptions can have “serious unintentional consequences.”

Consider a cottage property owned by the parents of three siblings, two of whom live abroad and use the property sporadically, while the third lives locally and uses it regularly.

“So the one who lives here spends time maintaining the property and carrying on as though it was his, and when the cottage goes equally to all three children, that [person] says, ‘Well, wait a sec. Those two weren’t even using it. I’ve put all the blood, sweat and tears into it. It should be mine,’ ” says Popovic-Montag.

These kinds of situations, she notes, can give rise to court claims based on the legal doctrine known as proprietary estoppel. When successful, proprietary estoppel claims allow courts to override a landowner’s rights over or intentions for her property if those rights or intentions would hurt someone else.

Proprietary estoppel can arise without anyone saying a word. “The key is that the party must have acted, by words or conduct, in a manner which causes another person to rely upon these words or actions to his or her detriment, in such a way that is unconscionable,” says lawyer Suzana Popovic-Montag.

Over the years, courts have developed a three-part test to determine if a claim of proprietary estoppel is valid. The plaintiff must prove:

• encouragement,
• detrimental reliance, and
• unconscionability.

In Clarke v. Johnson, for example, a case heard in 2012 at the Ontario Superior Court and then upheld in 2014 at the Ontario Court of Appeal, plaintiff Donald Clarke and his wife had built a cottage on property owned by his wife’s parents. When he and his wife separated, Clarke, with the knowledge of his former mother-in-law, Martha Johnson, continued to maintain and improve the cottage property over the next 20 years. Johnson let Clarke use the property since Clarke had sole custody of her grandchildren.

Following a family dispute, however, Johnson barred Clarke from the property. The judge found that all three aspects of the test applied: Clarke had been encouraged to maintain and improve the land for two decades. Relying on that encouragement, Clarke acted to his own financial and personal detriment, spending his time and money to add outbuildings, build a new dock and reconstruct a sauna. So, the judge found it would have been “unconscionable” to simply kick him off the land.

So, the principle of proprietary estoppel prevented Johnson from asserting her legal right to bar her former son-in-law from her own land, because her actions over the previous 20 years had created a proprietary interest for Clarke in that land.

What’s important to note with proprietary estoppel cases, says Thomas Grozinger, who acts as principal trust specialist at Royal Trust Corporation of Canada in Ottawa, is that judges have the leeway to come up with solutions proportional to the situation. That may not mean that a plaintiff gets the contested property outright. Rather, he says, judges are expected to award plaintiffs the minimum amount necessary to make things right between the parties.

In the Clarke case, for example, the judge awarded Donald Clarke what amounted to a personal, exclusive lifelong license to use the land—but not outright ownership. A similar remedy was applied in Love v. Schumacher Estate, a 2014 case heard by the Ontario Superior Court. Plaintiff Patricia June Love was awarded a 15-year license to occupy a cottage property that she had—with the permission and encouragement of its owner, her friend Lee Richard Schumacher—used since 1985.

Further, she’d spent more than $100,000 to maintain and improve the property. Schumacher had said on several occasions that the cottage would one day belong to Love. He had created, but never signed, two wills to that effect; when she confronted him, however, he denied ever having made such promises and barred her from the property.

Clients hoping to formalize verbal agreements can find it hard to broach the subject. Here are potential phrases they can use:

• “I’m here a lot, and I’m happy to help with the bills because this place is important to me. To make sure I contribute my fair share and that your interests are protected, can we have a deeper conversation about what your intentions are?”
• “I love spending time here. A few months ago, you mentioned that one day this property would be mine. That would be wonderful, but I want to make sure I understand what you mean before I get too excited.”
• “I really appreciate you entrusting me with this property, which is so important to both of us. To make sure I meet your intentions for the property, it’s best to put them in writing. My advisor knows a few people who can help.”

A plaintiff doesn’t have to prove financial loss to show detrimental reliance, however. Detriment can take the form of time and energy, or missed opportunities such as not pursuing education or a different career path because of reliance on a property owner’s statements or actions.

Lessons for clients

The key takeaway, say both lawyers, is to tell clients not to make verbal promises they don’t intend to keep. Even casual statements, like “I want you to enjoy the cottage for the rest of your life” or “You’ll get your reward for all this hard work,” can contribute to a proprietary estoppel claim, especially when a property owner also allows a potential claimant to act to his own detriment as a result.

Potential claimants, on the other hand, need to get those promises in writing. That might be as part of the landowner’s will, says Grozinger, “in a clear gift of the property to the individual. Alternatively, a contract prepared by a lawyer may be signed that binds the promisor and then the promisor’s estate to the fact that the land does belong to the individual.”

Popovic-Montag points to other possibilities: making an inter vivos gift of the land, or putting it in joint names while the owner is still alive. “The idea is to make the understanding clear and enforceable. [The promisee can] say, ‘Should we be entering into a formal agreement?’ A will can always be changed, but if you’ve got an agreement that’s outside the will, you’ve got a possibly enforceable contract. And that’s much stronger” (see “Conversation starter”).

Of course, formalizing verbal promises with binding contracts can be potentially awkward. People don’t like to ruffle feathers, or bring up money or death. But the potential awkwardness, and the upfront costs of creating a proper will or contract, pale against the bitterness and costs of a protracted court dispute in which the plaintiff will have to satisfy the three conditions proving proprietary estoppel.

“No one wants to cause trouble or be confrontational” in these kinds of situations, says Popovic-Montag. “But if [your clients] sit back and hope for the best, [they’re] going to be sadly disappointed.”

How to identify potential claims

As a litigator, Suzana Popovic-Montag sees proprietary estoppel claims when the damage is already done—when warring parties’ unspoken assumptions and undocumented promises land them in court.

And while it’s not necessarily routine practice for estate lawyers to ask clients whether they have a potential proprietary estoppel claim against their estates, perhaps they should, says Popovic-Montag, managing partner of Hull & Hull LLP in Toronto.

Add some routine inquiries to your checklist, she says. “When you talk about the nature of a client’s assets, and you hear about a farm or a cottage or chalet, ask a few more questions beyond how title is held and where you want it to go at the end of the day.”

She suggests the following:

• Who uses the property?
• What is the nature of the use?
• Have you contributed money or time to it?
• What sorts of conversation have you had, if any, about the property?

Those extra questions might alert you to the possibility of whether an owner has created some kind of enforceable expectation that the user has a right to the land. Look for the three red flags of encouragement, detriment and unconscionability: Has the owner encouraged the use of the land? Has the user maintained or improved the property because of that encouragement? Has he foregone other opportunities as a result? Has an expectation been created that the user has some interest in land—and would denying that interest be wrong?

“If you can anticipate a potential claim because you got a bit more background information,” says Popovic-Montag, “you might be able to do a better service and increase the value-add for your client.”’

Susan Goldberg is a financial journalist based in Thunder Bay, Ont.