Encumbrances – Permitted vs non-permitted

When buying or selling a piece of property for a client, one of the most important tasks that a lawyer must complete is an examination of title, and the instruments that encumber that title. When completing a Land Titles Search, to review the title of the property, there are a number of instruments registered against that title. These encumbrances can be either “Permitted” or “Non-permitted” encumbrances.

An instrument can be any number of possible items; a Homeowners Association can have a charge against a property, a mortgage can be registered against a property, a Utility Right of Way can be registered against the property; the list goes on and on for possibilities. However, as lawyers we split these instruments and encumbrances into the list of “Permitted” or “Non-permitted” encumbrances. There is no exhaustive list of all things Permitted or Non-permitted; the encumbrances must each be assessed by a lawyer to determine if they ought to remain on title.

A Permitted encumbrance is an item registered against the title that is allowed to remain on title over time, meaning that even when the title changes hands, the instrument is still relevant and accurately registered against title. The best example of Permitted Encumbrances tends to be things like Utility Right of Ways. A Utility Right of Way is a legal document, registered against the title, that allows the Utility Company to come and go from the property, maintain their service lines, and ensure that you are getting the services that you paid for. In short, it grants them a legal right to pass on and off the property, and have their service items pass on and off the property.

A Utility Right of Way is considered a “Permitted” encumbrance, because regardless of the owner of the property – Jane, John, or Nathan – that person will always need the Utility company to come and go, ensure that they are getting their utilities provided for them, and will have to allow the Utility company on and off the property for that purpose. Therefore, for the purposes of the encumbrance, it does not matter who is the owner of the property; merely that the property, and the title, continue to exist.

In comparison, a “Non-permitted” encumbrance, is an item registered to title that is relevant directly to the owner of the property, not to the title itself. The easiest example to look at for a Non-permitted encumbrance is a mortgage. A mortgage is a legal document registered against the title of the property, securing the loan on behalf of the bank, and this is a document that is related to the property, but is also related to the owner of the property. As a result, when the property changes hands, the mortgage is no longer accurate; it is now registered against a title that isn’t owned by the person who took out the loan.

From a lawyer’s standpoint, when buying a property for a client, I ensure that all Permitted encumbrances are, in fact, permitted, and I review each of them in detail. In turn, when I find an encumbrance that is Non-permitted, I ensure to receive an undertaking from the selling lawyer to remove all Non-permitted encumbrances. In this way, as your lawyer, I ensure that when selling a title, that you sever any and all ties to that title and remove all reasonable liability related to the property; and in turn, when you buy a property, I ensure that all proper Permitted registrations are reviewed, kept on title, and that all Non-permitted encumbrances are removed, so that you don’t take on any liability of the seller.

Tune in next time for more tips on buying or selling real estate, from Greg von Euw, at Alloy LLP!