Commercial Litigation and Dispute Resolution Blog

Developers frequently want to impose ongoing restrictions on purchasers.  Purchasers want their properties free of restrictions.  This tension has led to significant uncertainty (since the B.C. Court of Appeal’s decision in 585582 B.C. Ltd. v Anderson^[1]) about the enforceability of restrictive covenants requiring future commercial agreements.

This decision created issues for developers seeking to use restrictive covenants, rights of way, and other restrictions on title to govern the future use of units in a development.  While many of the cases focus on rental pool agreements, there are many situations where a developer will want to require future commercial agreements on title, dealing with issues such as parking, common amenity use, re-sale, and maintenance.  This is particularly important where a developer will retain an interest in the development, including phased developments and resorts.

A new decision from the B.C. Supreme Court, Anoroc Holdings Ltd. v 585582 B.C. Ltd.,^[2] has clarified the law, finding a restrictive covenant requiring a rental pool agreement enforceable because of the level of disclosure in the Disclosure Statement. The court found that despite the factual similarity to Anderson, the developer had walked the line.

Background: the Decisions in Anderson and Skene

In Anderson, a 2015 decision, the BCCA found that a restrictive covenant requiring resort unit owners to rent through a rental pool, rather than privately, could not be enforced against title due to uncertainty. Mr. Anderson attempted to rent his unit privately and brought proceedings to the Court to declare the covenant void. The BCCA found that the covenant was uncertain because the terms of the covenant, were unclear as there was no evidence that the rental management agreement existed when the covenant was filed.  The covenant was in effect an agreement to agree, and unenforceable. The covenant was discharged against title to numerous units across the resort as a result.

A subsequent case, Skene,^[3] addressing the enforceability of a statutory right of way, cited Anderson for the proposition that a successor in title must be able to determine the terms of the covenant by examining it without looking beyond the covenant. While Skene was decided on other grounds, the Court’s commentary was decidedly pro-Anderson and took a narrow view of certainty as it pertains to restrictive covenants.  

The Decision in Anoroc

Anoroc was interesting from a legal perspective in that it dealt with the exact same development, and exact same covenant, that has been struck down in Anderson, but came to a different conclusion based on new evidence.

The draft covenant and the rental management agreement attached to the REDMA disclosure statement in evidence in Anoroc but hadn’t been in Anderson. The Court found: (i) that stare decisis did not necessitate the same result as Anderson due to the different evidence; (ii) that issue estoppel and abuse of process were not applicable; and (iii) that the Covenant was sufficiently certain because the rental management agreement was sufficiently certain that purchasers would know what they were agreeing to.

The Court’s finding that the covenant was sufficiently certain affirms that prospective purchasers may have to look beyond the wording of restrictive covenants to understand their obligations (and implicitly disagrees with the conclusion in Skene).

The Court in Anoroc reviewed a series of other decisions interpreting Anderson. They are:

• Zhang v Davies,^[4] upholding a restrictive covenant that required Mr. Zhang’s written approval of building plans for the Davies’ property. Zhang distinguished Anderson on the basis that a central aspect of the Anderson covenant was an “agreement to agree” which is not enforceable.
• 1114829 B.C. Ltd. v Whistler (Municipality),^[5] upholding a restrictive covenant relating to a rental pool agreement requiring hotels in Whistler to act in accordance with the “warm beds policy,” noting that the rental pool agreement was attached to the disclosure statement, and holding that the fact that potential owners need to look beyond the registered covenant does not necessarily render the covenant uncertain.
• 1120732 B.C. Ltd. v Whistler (Resort Municipality),^[6] affirming the validity of the warm beds covenant noted above, with the BCCA stating that Anderson “stands for the proposition that a covenant will be unenforceable if it requires an owner of property wishing to rent out their unit to first enter into an agreement with a third party having unknown terms and if there is no mechanism for settling the terms of the agreement.”
• Kent v Panorama Mountain Village,^[7] upholding a restrictive covenant relating to a rental pool agreement, with the BCCA noting that the disclosure statement that attached the intended restrictive covenant and rental pool management agreement allowed prospective purchasers to “understand the contractual commitments expected of them if they wished to rent their units,” and, consequently, that the covenant was not uncertain.

Key Takeaways

The Court’s decision in Anoroc provides useful guidance to those seeking to impose enforceable restrictive covenants registered on title, including:

• the information provided in disclosure statements can protect a restrictive covenant’s enforceability by creating a sufficiently certain mechanism for the determination of a future agreement;
• any additional documents related to a restrictive covenant, such as a rental pool management agreement, should be in (as close as possible to) final form and provided in the disclosure statement;
• the court’s analysis of enforceability will be nuanced and fact dependent, as evinced by the differing treatment of Anoroc and Anderson;
• these types of cases are prone to subjectivity, so there may be ongoing difficulty imposing onerous, unfair, or unexpected terms via restrictive covenants.

In our view, Anoroc provides welcome certainty that providing draft agreements in a disclosure statement can effectively protect the enforceability of future restrictions, and is a helpful departure from Anderson.

Significant tension between the legitimate interests of developers and purchasers remain, and we expect that other restrictive covenants will continue to be challenged in the future. We note that other routes to such challenges (such as section 35 of the Property Law Act) remain. 

Should you have concerns about the enforceability of interests on title, please contact Tom Boyd (Litigation) or Chad Travis (Real Estate) who will be happy to assist.

^{[1] 2015 BCCA 261.}

^{[2] 2024 BCSC 1632.}

^{[3] 2019 BCSC 2051.}

^{[4] 2017 BCSC 1180, aff’d 2018 BCCA 99.}

^{[5] 2019 BCSC 752.}

^{[6] 2020 BCCA 101.}

^{[7] 2021 BCCA 332.}