Co-Owners & The Right of Partition or Sale

Co-owners are bound together by their shared ownership of a single piece of real estate. While each owner has a distinct interest in the land, neither owner can take unilateral action with respect to the physical property itself. If the parties can’t agree how to deal with the property either may make an application to court under the Partition Act RSO 1990, c P.4 for a physical division of the land (known as “partition”) or a court-ordered sale of the property and division of the proceeds.  The remedies under the Partition Act are available regardless of whether the real estate is co-owned by way of joint tenancy or tenants-in-common.

The general principles applied to determine whether the court should grant an application for partition or sale were stated by the Ontario Court of Appeal in Davis v Davis, [1954] OR 23, they are:

• A co-owner has a prima facie right to partition and sale,
• The other co-owner has a concomitant obligation to permit partition or sale, 
• The court should compel partition or sale unless there is a sufficient reason such an order should not be made.

Over the last several decades, case law has helped elucidate what constitutes a “sufficient reason” for refusing partition or sale. The following principles apply.

• The court’s discretion should only be exercised to refuse partition or sale where the applicant has behaved maliciously, oppressively, or with vexatious intent toward the respondent, 
• The court may refuse an application for partition or sale if hardship, including financial hardship, to the co-owner resisting the application is of such nature as to amount to oppression, 
• The discretion is broader in family law matters. In commercial matters the discretion to refuse is applied sparingly.

In Dibattista v Menecola (1990), 75 OR (2d) 44, the Ontario Court of Appeal, stated “the sections [of the Partition Act] are … not intended to be a means by which one tenant in common can acquire the interests of the other…Neither party can be given a right of first refusal. Both parties are free to bid at such sale and can be expected to protect their investment.”

In Gartree Investments Ltd. v Cartree Enterprises Ltd., [2002] OJ No 753, three sisters each had a one-third interest in the property. One sister wanted the property sold so she could disengage herself from her two sisters. The two resisting sisters offered to buy-out the applicant for 115% of an appraised value. They also tendered as evidence an expert report indicating that the appraised value plus 15% would exceed the price on the open market. The applicant declined the offer. The Ontario Superior Court determined that the only benefit to the applicant in forcing an open-market-sale was the personal satisfaction of a forcing upon her sisters a result they didn’t want. The Court held that the applicant’s position was vexatious and malicious and that she was abusing here prima facie right to a market sale to thwart the legitimate concerns of her sisters.

In Greenbanktree Power Corp. v Coinamatic Canada Inc., [2004] OJ No 5158, the Ontario Court of Appeal clarified the law, stating “we should not be taken as holding that the mere existence of a ‘generous’ offer is sufficient grounds to defeat an application for partition and sale. The existence of an offer is merely a factor to be considered along with all the other circumstances of the case in deciding whether there has been oppression.”

In Garfella Apartments Inc. v Chouduri et al., 2010 ONSC 3413, noting that there is a dearth of case law regarding oppression in the commercial partition setting, the Ontario Divisional Court chose to apply the oppression remedy test used in shareholder disputes. Relying on the Supreme Court of Canada’s decision in BCE Inc. v Debentureholders, the Court applied the following two prong test: (1) does the conduct undermine the reasonable expectations of the parties, and (2) is the conduct coercive, abusive or does it unfairly disregard the interests of minority owners.

Co-owners are encouraged to ​enter into co-ownership agreements that address the disposition of their respective interests; perhaps providing for a shotgun clause. The court will refuse to grant an application for partition and sale where to do so facilities breach of contract.