The Land Use Licence – A Right Without an Interest (And Why That Matters)

May 10, 2010 | John A. Cross

Just what is a land use “licence” anyway? The current edition of a Canadian leasing law textbook defines a licence as the granting of permission to another party to do something which they could not otherwise do without trespassing on the grantor’s property. More particularly, a licence for the use of real property has been characterised as the granting of a contractual right or permission by a qualified party (grantor) to another (licensee) to do something for a specified period of time, which the licensee could not otherwise do without trespassing on the grantor’s lands. Day to day examples often cited include parking passes, theatre tickets and hotel room bookings – relatively limited rights.

Still, these textbook definitions are pretty wide, and can be read to encompass a broader variety of legal rights and interests than just those conferred upon the holder of a mere parking pass. Indeed, it would be difficult, on the basis of these definitions above, to distinguish a licence agreement from a lease, for example, or an easement. Perhaps not surprisingly, the Courts have been called upon to clarify matters. The proper legal characterization of any agreement is crucial, because leases and easements are interests in land and licences are not – licences confer contractual rights only. This legal distinction carries significant consequences. Just ask Ducks Unlimited.

In a 2005 Manitoba Court of Appeal decision, Ducks Unlimited discovered to their horror that their existing agreement granting them rights to maintain a water management system over certain lands was not binding upon the subsequent purchaser of the lands. The Court said that Ducks Unlimited had no right to be there. This, despite the fact that their agreement with the prior landowner was a valid contract; that notification on the title was registered decades earlier by way of caveat, and the caveat had continuously remained, undisturbed, on the title; that the purchaser was actually aware of the agreement and the caveat; and that Ducks Unlimited had already invested over a million dollars developing a system which had been in operation on the lands for many years. The case is both dramatic and instructive in distinguishing mere licences from other interests.

The Manitoba Court of Appeal reviewed the underlying agreement and the caveat, and, largely through a process of elimination, concluded that the agreement conferred a mere licence and was not an agreement in the nature of a lease or an easement. Since Ducks Unlimited had not acquired an interest in land, their rights under the agreement did not run with the land, and were therefore not binding upon subsequent purchasers. Their caveat was invalid.

The land use agreement at issue granted to Ducks Unlimited the following specific rights:

1. to enter upon and travel along and over the lands;

2. to construct and maintain the project on the lands;

3. to bring upon and maintain on the lands a certain quantity of water;

4. to do on the land such further acts as were required for the foregoing purposes; and

5. to register the agreement with the Land Titles Office.

Ducks Unlimited first argued that the agreement created a right of easement, which clearly would have amounted to an interest in land. The Court noted that while the rights given under the agreement may have been of a type sufficient to support an easement (i.e. a right to access and travel upon the lands and to construct and maintain), the agreement nonetheless failed to create an easement, because an essential characteristic of an easement was missing. The Court held that, absent some statutory exceptions which did not apply, as a matter of real property law an easement could be granted only to benefit other lands in the vicinity (the dominant tenement) and further, that the dominant tenement lands had to have been owned by the grantee at the time the easement was granted. The Court held that, despite some argument to the contrary, Ducks Unlimited did not own any dominant tenement at the time the agreement was entered into, and none were mentioned or discernable in the agreement: therefore the agreement did not create an easement. It bears noting here that since 1996, Alberta has by statute permitted conservation easements without the benefit of a dominant tenement, where the statutory prerequisites are met.

The Court then considered whether the agreement should be characterized as a lease: also an interest in land. The Court quickly concluded that the agreement was not a lease, because “one essential characteristic of a lease is the conveyance of exclusive possession and no exclusive possession was conveyed by the agreement”.

After disposing of easements and leases as candidates, the Court found that the agreement was a licence, i.e. “a mere permission which makes it lawful for the licensee to do what would otherwise be a trespass”. The Court held that the caveat should not have been submitted for filing, as the agreement did not create any interest in land, and that the purchaser of the property was accordingly not bound by the agreement, even though there was evidence that this ruling could jeopardize the entire project and adversely affect other landowners.

The unfortunate result in the Manitoba case underscores the importance of being clear, from the outset, about the actual legal characterization of the right or interest one intends to create.

It also bears noting that at law, a licence cannot be enforced in the same manner as an agreement creating an interest in land. In this regard, a licensee is further disadvantaged. As holder of a mere contractual right, the licensee has no recourse to the real property law remedy of “specific performance” i.e. the ability to compel performance of the contract. The aggrieved party under a licence is restricted to an action in damages (in this case against the original grantor) and cannot compel delivery of the underlying right, whereas a party under a real contract may seek both remedies. This is due to historical differences in the development of real property law as opposed to contract law.

In conclusion, while a licence can authorize substantially the same use of land as a lease, easement, or other real interest, the legal effect and practical result can be much different. Care must be taken to ensure that the actual right or interest created is the one intended.

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