Written by: Sara Bahadori
Investing in real property with a partner can be a rewarding venture. However, when relationships between co-investors deteriorate, disputes over ownership and control of the property often arise. In such scenarios, a Certificate of Pending Litigation (“CPL”) can serve as a crucial legal safeguard, protecting an individual’s interest in the property while the matter is resolved in court. This article explores the significance of a CPL, the criteria for its issuance, and its application in partnership disputes, with a focus on the recent case of Gentles v. Lynch, 2024 ONSC 2656.
What Is a CPL?
A CPL is a legal notice registered on the title of a property to inform the public that the property is the subject of ongoing litigation. The primary function of a CPL is to preserve the property’s status quo, preventing it from being sold, mortgaged, or otherwise dealt with until the court resolves the dispute. By doing so, a CPL ensures that the rights of all parties involved are safeguarded.
When Can a CPL Be Issued?
Courts issue a CPL based on a two-part legal test:
- Existence of a Triable Interest in Land: The applicant must demonstrate that they have a potential legal interest in the land that could succeed at trial. Importantly, this requirement sets a relatively low bar; the applicant does not need to prove their case—only that their claim has a legitimate basis worth judicial consideration.
- Application of the Dhunna Factors: The court must also consider a set of equitable factors, known as the Dhunna factors, which include:
- The strength of the plaintiff’s claim;
- The uniqueness of the property in question;
- The potential harm to both the Plaintiff and the Defendant; and
- The balance of convenience.
Through this analysis, courts exercise discretion to determine whether granting a CPL is just and equitable under the circumstances.
Case Study: Gentles v. Lynch, 2024 ONSC 2656
Recently, the Court examined the use of a CPL in the context of a partnership dispute. Three partners entered into a partnership agreement to purchase a pre-construction home in Barrie. Each partner was to hold an equal one-third interest in the property. While the partners contributed equally towards the deposit obligations under the Agreement of Purchase and Sale (“APS”), Mr. Gentles was not included in the APS. When Ms. Lynch and Mr. Gentles’ romantic relationship broke down prior to closing, Ms. Lynch refused to sign an amendment to the APS to add Mr. Gentles as a purchaser.
In response, Mr. Gentles initiated legal action. Pursuant to a Consent Order, the partners agreed to take title in Ms. Lynch’s name alone, with the undertaking that she would not encumber the Barrie Property for two years pending the outcome of the litigation. As the two-year period was set to expire before the trial, the Court determined that a CPL was necessary to preserve the status quo. The Court found that the threshold test was met, as there was sufficient evidence to establish a claim to an interest in land upon which Mr. Gentles could succeed. All the pleadings had confirmed the existence of a partnership formed to jointly purchase the Barrie Property, and Ms. Lynch had even acknowledged that Mr. Gentles had contributed to the deposit. Applying the Dhunna factors, the Court concluded that a CPL was warranted. The Court emphasized that a claim for damages does not automatically bar the issuance of a CPL, particularly when there is a valid claim to an interest in land. Additionally, the Court held that Ms. Lynch’s lack of intent to dispose of the property was not determinative. On the contrary, the Court reasoned that if there was no intention to sell the property, Ms. Lynch could not be prejudiced by the issuance of a CPL.
Given the recent developments and the Court’s flexible application of the Dhunna factors, a CPL serves as a valuable tool in partnership disputes involving joint-owned property.
