Preservation Order vs. Certificate of Pending Litigation

When a real estate transaction fails, the standard remedy for an allegedly innocent buyer seeking specific performance is not a preservation order under rule 45.01 of the Rules of Civil Procedure, but rather, a certificate of pending litigation pursuant to s 103 of the Courts of Justice Act.

In Seif v. Hamilton, the plaintiff buyer sued the defendant seller for specific performance of an Agreement of Purchase and Sale. The plaintiff, represented by James S. Quigley and Juliana Kotsopoulos of Spetter Zeitz Klaiman PC, wanted to maintain the status quo and ensure that the defendant was prevented from conveying her property to a third party prior to trial, which would have frustrated the action. 

Accordingly, the plaintiff brought a motion seeking a preservation order pursuant to rule 45.01 of the Rules of Civil Procedure, or, alternatively for a certificate of pending litigation (a “CPL”) pursuant to s. 103 of the Courts of Justice Act and rule 42.01 of the Rules.

The plaintiff sought a preservation order in priority to a CPL on the basis that a preservation order is a form of injunctive relief which would bar the defendant from conveying the property; whereas a CPL is only an encumbrance on title and not an absolute impediment to a transfer, such as to a non-arm’s length party willing to accept title “as is”, which would necessitate the plaintiff to expend considerable time and energy to unwind.  Registration of a preservation order on title to the subject property would result in the engagement of the “no dealings” indicator by the Land Registrar.

In holding that a CPL is the proper mechanism to prevent a transfer, the Court reasoned the impugned property is not personal property – it does not perish; custody over land is irrelevant; and the defendant seller was not depleting her assets nor was she leaving the jurisdiction. 

The term “custody or preservation” in rule 45.01(1) means that the court keeps the property within its control. While this option may have more “teeth” than a CPL, the Court found that these circumstances did not meet the stringent criteria required to warrant a preservation order: 

[4] Resort to a preservation order is peculiar, anomalous, and unnecessary in a specific performance action where the conventional approach is to obtain a certificate of pending litigation.

By denying an interim preservation order, the Court narrowed the options available to parties involved in a failed real estate transaction seeking specific performance, and effectively confined the application of preservation orders to personal property only. 

It is yet to be determined whether future rulings will expand the protection afforded by preservation orders to include real property. But for now, where a CPL is readily available, litigators are urged to use that option.

Written by: Juliana Kotsopoulos