Sale of Building Without Land Breaches Planning Act

In novel scenario, the court was asked to declare that the sale of an office building – without the land beneath it – did not contravene the subdivision control provisions of the Ontario Planning Act, because the sale did not convey an “interest in land.”

BRL Realty Limited (“BRL”) tentatively agreed to sell a physical office building to Equinix Canada Ltd. (“Equinix”).  The $142 million arrangement called for Equinix to purchase “the building and all other structures, fixtures and improvements constructed or affixed to” lands, but not the land on or under it, nor any of the air rights above it.   The ownership would be transferred to Equinix by way of a Bill of Sale, and the parties would enter into a Ground Lease for 49 years.  The transaction would not be registered on title, and while Equinix would have exclusive possession, ownership would remain with BRL.  The deal was conditional on obtaining an order or declaration by an Ontario Superior Court judge that the transaction did not contravene section 50 of the Planning Act.   BRL went to court to try to obtain one.

The court refused BRL’s request. It noted that the purpose of section 50 is to prevent the unrestricted division of land in Ontario.  In this case, the pertinent clause was subsection 50(5), which prevents a person from entering into an agreement of sale that “has the effect of granting the use of or right of in a part of any lot directly, or by entitlement to a renewal for a period of 21 years or more” unless certain conditions are fulfilled.  One of those conditions is that the grantor (in this case BRL) did not retain a power to grant or otherwise deal with property abutting the land conveyed. The putative arrangement with Equinix breached those provisions.

In making this determination, the court considered BRL’s novel argument that the office building was an “improvement” or “fixture” on the land, but was not part of the land itself.  Without the required “interest in land”, BRL claimed that it was entitled to convey the building separately without offending the Planning Act.

The court rejected this argument. In law, a building is typically viewed as a fixture.  Admittedly, BRL and Equinix could agree that – as between themselves – the building was to be owned separately from the land. This did not affect the reality that the building was legally still a fixture that formed part of the land nor would it change the rights of third parties that may arise from that fact.  As the court explained:

While the parties’ characterization of the Office Building as a chattel binds them, it does not as a matter of law transform the Office Building into a chattel as such agreement does not alter the degree and object of the annexation of the Office Building to the subject land and thus the Office Building remains part of the subject lands.

As such, and notwithstanding that the agreement between BRL and Equinix purported to say otherwise, the building was still considered part of the “land” for Planning Act purposes, and the proposed transfer was in breach of s. 50(5).  The court refused to grant BRL’s application for a declaration or order endorsing the transaction. See: BRL Realty Limited v. Equinix Canada Ltd., 2019 ONSC 3080.