[co-author: Vanessa Kiraly - Lawyer in Training]

"This Court accepts that it is very harsh for an owner of land to be forcibly compelled to sell land that they have no desire or wish to sell—this amounts to a private expropriation. This Court also accepts that it is very harsh for a homeowner, who did nothing wrong, to be forced to tear down a significant portion of their structure."¹

What happens when part of your dream home is constructed on your neighbour's property? You might think that you would be forced to tear that home, or at least part of it, down. It’s not your land, after all. You are trespassing. It’s unlikely that you would think that you could get the court to force the neighbour to sell you part of its land. In the abstract, that seems preposterous, if not offensive to the whole idea of property ownership.

And yet, as it turns out, it’s not quite so obvious. With the right facts, a court may apply principles of equity to effectively force a private expropriation between neighbours, as harsh as that sounds. So much for the sanctity of land ownership.

In Armstrong, et al. v. Penny, et al. (Penny) the Ontario Superior Court of Justice attempted to strike an equitable balance between the rights of two property owners, one of whom had their home encroaching 35 feet over the other’s property.

Referring to the equitable principles underlying section 37 of the Conveyancing and Law of Property Act (CLPA) and section 99 of the Courts of Justice Act (CJA)², the court departed from the presumption that the solution to trespass in an encroachment dispute is removal of the trespass (that is to say, removal of the encroaching part of the building).

Let’s consider the facts. In 1998, Penny hired Coachlamp Homes Inc. (the Builder) to build a custom home on their waterfront property. The Builder hired an architectural designer who created a placement drawing that specified the home's setbacks as 11 feet from the northern property boundary and 22 feet from the southern property boundary. The placement drawing was not a survey.

The Builder then submitted a building permit application to the former Township of Fenelon, now the City of Kawartha Lakes (the Municipality). Although the measurements for the overall dimensions of the main part of the home aligned with those listed on the building permit application accepted by the Municipality, the Municipality did not rely on a survey to confirm its location.

The Builder also engaged Coe, Fisher, Cameron (the Surveyor), to establish boundary lines for the construction process. It was evident from the job order sheet that the surveyor did not receive clear instructions from the Builder to survey both the northern and southern boundaries of the property. Instead, the instructions requested the surveyor to "locate 1 limit for the loc/n of new house"³, failing to specify what boundary was surveyed. This is all to say, that the Surveyor did not end up doing a survey of the part of the property where the house eventually trespassed on the neighbour’s land.

So, to recap, the Builder, architect, Surveyor and the company that excavated the land (the Excavator) together designed, located and built Penny’s home, and the Municipality approved and closed all permits for that home, all without one of them having a survey.

Penny moved into the completed home in March 1999, none the wiser.

Three years later, Armstrong moved in next door (the lands to the North). When Armstrong bought the home, (you guessed it), they did not obtain a survey of their lands (which of course, would have shown the trespass/encroachment). The terms of Armstrong’s acquisition mortgage required that they obtain a survey, and (you guessed it again), the mortgagee also didn’t insist on the survey delivery.

The following year Armstrong finally had a survey done (for an entirely unrelated purpose), and everyone (the entire cast of characters) was surprised by the incredible misplacement of the Penny home on a chunk of Armstrong land.

After several unsuccessful attempts to settle the dispute between the parties, Armstrong filed a statement of claim in July 2008, seeking general and special damages, along with a permanent and interlocutory injunction mandating Penny to remove the encroachment (that is, tear down the offensive part of the Penny house).

In response, the Penny initiated a third party claim against the Builder, the Surveyor, the Excavator, and the Municipality, seeking indemnity for the alleged losses and damages in the main action.

The main action was heard in February 2022, during which the court considered several options to redesign the garage and reduce the home's encroachment. Each of these options was estimated to cost Penny hundreds of thousands, if not millions, of dollars.

Before we go further, let’s refresh on how the law of trespass works presumptively.

Injunctive relief (a court order saying “thou shalt remove”) is the presumptive remedy for trespass⁵. That said, the law allows for a rebuttal to that presumption.

To rebut this presumption, the burden rests on the defendant to establish exceptional circumstances that justify relief from an injunction requiring removal of the trespass⁵. In this case, the defendants sought equitable relief under section 99 of the CJA or section 37 of the CLPA⁶.

Section 99 of the CJA states a court that has jurisdiction to grant an injunction or mandate specific performance may also award damages either alongside or instead of the injunction or specific performance⁷. The court then outlined the test to award damages in lieu of an injunction, as established in Shelfer v. City of London⁸. Damages may be substituted for specific performance or an injunction where:

• the injury to the Plaintiff's legal right is small;
• the injury is one which is capable of being estimated in money;
• the injury can be adequately compensated by a small money payment; and
• granting an injunction would be oppressive.

The third parties also relied on section 37(1) of the CLPA. Section 37(1) entitles those who have made lasting improvements to the land under the belief that it is their own land to (a) claim a lien upon it to the extent by which its value is enhanced by the improvements, or (b) retain the land, subject to the court's discretion, with compensation being provided for any retained land. To grant section 37 relief, the party seeking a remedy has the burden of establishing:

• an honest and bona fide belief that they owned the land. The belief of ownership must be reasonable. In other words, based on fact or logic;
• the improvements must be of a lasting nature. A lasting improvement is one that is not easily removable; and
• the court must weigh the equities between the owner of the land and the person making the improvements to determine whether it is more appropriate to grant a lien for the value of the improvements or to transfer the land to the person making the improvements. For a claim to transfer the land, the improvement does not necessarily have to increase or decrease the value of the land. For a claim to lien, however, the improvement must show an enhancement of value.⁹

The court reviewed case law applying section 37(1) of the CLPA, concluding that decisions are to be made on a case-by-case basis, with regard to each case's unique factual scenario. In Corkery v. Moffit, 2022, ONSC 105, for example, the balance of equities favoured transferring the land to the applicants given the length of time the garage encroached on the respondents' property, the applicants' use of the space surrounding the encroachment, and the fact that the encroachment did not prejudice the respondents or devalue the respondents' property.

With all of this in mind, the court affirmed its power to force the conveyance of land being trespassed upon to the trespasser for a fair value in lieu of requiring that the offending building be torn down.

The court determined a land value of $9.10 per square foot, and awarded Armstrong $1000 in general damages for trespass, plus costs for the transfer of land.

As for Penny (who, to be fair, was not at fault for her misplaced home), the court found that she was to be indemnified by the Municipality, the Excavator, and the Builder for amounts she now owed Armstrong.¹⁰

The court cited the following reasons, amongst others, as justification for its decision:

1. The injury to Armstrong's legal rights was small: The size of land required to retain the garage, 346.1 square meters, was objectively a small percentage of Armstrong’s total property. Armstrong would not likely need the land where Penny's home was situated when doing further building on their own lands. Moreover, Armstrong had not argued that there was any serious infringement on privacy due to the encroachment.
2. Armstrong's injuries are quantifiable and adequately compensated by a small monetary payment. The lands had been appraised by two experts; therefore, the injury could be estimated in monetary terms. The land did not have a unique use or qualitative identity superseding the monetary benefit obtainable from a forced sale of land.
3. Granting an injunction would be oppressive to Penny. Penny’s garage and home had remained in its current location for over 20 years. Penny was not responsible for the negligence of the third parties and genuinely believed that the home was constructed entirely within the property boundaries, as evidenced by their consistent maintenance of the area surrounding the encroachment. Demolishing and relocating the garage would have altered the character and lighting conditions of the residence. The cost to demolish and rebuild it would have greatly exceeded the value of the property to be severed. The estimated cost to rebuild the garage in 2023 ranged from $395,000 to $790,000.
4. Penny’s garage and home are lasting improvements. The garage was built in 1998, costing $300,000, and has been continuously used since construction was completed.
5. Armstrong neglected to obtain a survey confirming the locations of the buildings prior to acquiring the lands in question.

So, what are the takeaways from this case?

Notwithstanding the basic principle of real property law that a person should be entitled to the full use, occupation, and possession of land they own,¹¹ there are circumstances where a court will apply equitable principles to interfere with that principle. As counterintuitive as it may seem, there are circumstances in which one neighbour can, by court order, effectively expropriate lands of another that they are encroaching on.

And let’s not ignore the other underlying lesson in this case. Everyone in this story—builder, surveyor, architect, excavator, municipality, neighbour and neighbour’s lender—failed to get a property survey done. This problem could have been caught at any number of stages, and (astonishingly), it wasn’t. There is a misconception that surveys are not important, and that given the certainty of our land titles system (and the common use of title insurance), our land ownership is secure, guaranteed and insured. It is not that simple, as is well evidenced by this case. A survey is the only way that one can definitively understand the location of property boundaries, and the relative location of buildings, structures, easements, fences and other improvements, in relation to each other and to such boundaries. Always get one done.