Be Careful what you Agree to: Municipal and Planning Agreement Enforceability and the Potential for Perpetual Impacts on Landowners

May 21, 2024

Written By Andrew Jeanrie and Vanessa Colton

When are agreements entered into as part of the land use planning approval process an extension of that process, and therefore changeable through a future process, and when are they more akin to commercial contracts that will be enforced as such?

Essentially, this was the question raised in the decision of the Ontario Superior Court of Justice in Cedarhill Golf Enterprises Inc. v. The City of Ottawa (the City) (April 2, 2024). 

Cedarhill Golf Enterprises Inc. (Cedarhill) sought a declaration from the Superior Court of Justice, that Schedule Y5 (Y5) of a subdivision agreement (the Agreement) registered on title to its property (the Lands) was ultra vires, invalid and unenforceable. More specifically, Cedarhill was opposed to a mandate in Y5 which required the continued operation of a golf course on the Lands in perpetuity. The golf course currently operating on the Lands is no longer financially viable. Cedarhill had argued the following points:

• the City did not have the statutory authority to enter into the Agreement;
• the Agreement should be considered a planning instrument which should remain open to changes in law and policy;
• the Agreement contains positive covenants and therefore should not bind Cedarhill as a successor in title;
• Y5 created a contingent interest in land that is now void; and
• Y5 amounts to a constructive taking and Cedarhill is entitled to compensation.

Background

Cedpar, the previous owner of the Lands, had entered into the subdivision agreement in 1980. It is important to note that at the time the subdivision agreement was put in place, Cedpar agreed to keeping the golf course in perpetuity in exchange for certain development rights.

The Agreement specifically secured the ongoing operation of the golf course in perpetuity, with the exception of a mechanism for which the golf course mandate could be removed or altered. In short, the Agreement provided step in rights for the City to operate and maintain the golf course in the event of default by the owner.  In the event the City exercises its license to operate and maintain the golf course and determines that golf operations are no longer commercially viable, the City can then change the use of the lands, so long as doing so would (1) maintain the subject lands as open space (while complying with existing zoning) and; (2) provide written notice to the owner and any mortgagee. The Agreement also provided that the City and the owner may agree to change the requirement to comply.  

Issues Before the Courts

The Divisional Court addressed five specific issues as it related to the enforceability of the Agreement.

Did the City have the statutory authority to enter into the Agreement, including Y5, with Cedpar in 1980?

Cedarhill argued that the Agreement is an ultra vires attempt by the City to circumvent the limitation on the amount of land that can be dedicated for a public park through a subdivision agreement. The Court saw no merit to this argument as the Planning Act, R.S.O. 1970, c. 349 expressly authorized municipalities to enter into agreements as a condition to the approval of a draft plan. While the legislation sets a maximum amount of parkland that can be required from an owner, the Court held that it did not prevent the parties from entering into an agreement to provide more than the maximum amount required. 

It appears to have been of importance to the Court that developers are not without remedy in circumstances where they believe municipalities are overreaching or imposing unreasonable conditions as they can appeal to the OLT at any time before the draft plan is finally approved—suggesting that the failure to use the rights to appeal supports the notion that the subdivision agreement was closer to a commercial contract rather than government imposition.

The Court further affirmed that subdivision agreements are of fundamental importance to Ontario's land planning process and are an enforceable mechanism for ensuring compliance with conditions of approval following registration of a plan of subdivision.

Is the Agreement enforceable as a contract? Alternatively, is it a planning instrument that should remain open to changes in law and policy?

Cedarhill argued that subdivision agreements are planning instruments rather than contracts and as such they should remain open to changes in law and policy. The Court disagreed. Cedarhill had not cited any authority which stated that subdivision plans should be open to changes in law and policy. Additionally, courts have repeatedly concluded that a subdivision agreement is a contract and is to be interpreted according to normal principles of contractual interpretation.

Does the Agreement bind Cedarhill as a successor in title?

Cedarhill argued that because keeping the golf course open was a positive obligation, the mandate is not enforceable against the applicant as a successor in title to the Lands. Again, the Court did not agree. The Court stated that the nature of subdivision agreements is such that most if not all covenants are positive obligations and that Section 51(26) of the Planning Act, R.S.O 1990, c. P. 13 is a specific statutory exception to the common law rule that positive covenants do not bind successors in title.  As the Agreement had also been registered on title to the Lands it is; therefore, binding on any and all subsequent owners of the land. The Court held that any other interpretation would undermine the protection envisioned by the Planning Act.

Does the Agreement create contingent interests in land?

Cedarhill argued that any contingent interests in land created by a subdivision agreement in 1980 must have vested by 2001, otherwise the interests of the City are void for remoteness.

The Court found that the rule against perpetuities had no application in this case, as the City only had a right to enter the golf course lands as a licensee. The City's right was purely contractual and did not create a contingent interest in the land.

Does the Agreement amount to a constructive taking?

Cedarhill contended that to enforce the terms of Y5 would constitute a de facto expropriation to which Cedarhill is entitled to compensation under the Expropriations Act. The applicant argued that Y5 would leave Cedarhill with only notional use of the land and deprive it of all economic value. The Court focused on the nature of "expropriation" in the Expropriations Act, R.S.O. 1990, c. E.26, which requires the taking of land without the consent of the owner. Here, the consent and concurrence of Cedpar (by agreeing with the subdivision condition and entering into an agreement to secure such condition) was found to be inconsistent with the concept that the land was taken without consent.

Conclusion

While the Court ultimately found the Agreement, including Y5, to be valid, it determined that rather than dismiss the application it would adjourn the application for a period of 120 days while encouraging the parties to seek mediation with a view of achieving resolution in keeping with the provisions of the Agreement. 

As of the date of this posting, no leave to appeal has been sought.

This case serves as several warnings to both owners of land seeking planning approvals and to proposed purchasers of land:

• subdivision agreements, and perhaps other agreements entered into with municipalities, may be enforced similar to commercial agreements rather than treated as planning instruments (that can be changed with public policy);
• subdivision agreements may be enforceable against lands (and the owners of lands) even where the matters secured in such agreements go beyond what a municipality might be able to “force” out of the property owner if the matter had been challenged at the time of approval;
• that the conditions put into a subdivision agreement, even positive covenants, which are not satisfied at the time of registration, can continue to bind owners and any successors in title, potentially in perpetuity; and
• that other agreements entered into at the time of land use planning approvals may be found to be similar to subdivision agreements.

If this decision is not overturned, then land owners and those looking to purchase lands are going to need to take a careful look at the agreements registered against their title in order to understand the potential (or lack thereof) of the underlying asset.

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