Law QUEST FOR TITLE

A mainstay of the mining industry Ais negotiating and entering into Aagreements to acquire property interests. Often, great pain is taken to make sure that the agreement is complete and clearly sets forth the respective rights of the parties. But what use is even the perfect agreement (if there is such a thing) if the operator does not own what he thinks he does, or if the optionor is somewhat less than honest and double-deals the property to “a bona fide purchaser without notice?” (It may be remembered that, at law, if a bona fide purchaser acquires an optioned property without notice of an optionee’s interest in it, in all likelihood the purchaser will keep the property to give back to the optionee for his improper actions — a sma ll consolation if the optioner has spent his money and the optionee has lost a mine.) It is up to the optionee to look after its own interest. So what are some of the things to think about? If an option is being considered with respect to real property, as opposed to unpatented mining claims, a practice has grown up within the mining industry merely to have a fieldman visit the local Land Titles or Registry office and check the title book to confirm that the optionor is registered as the owner and that there are no encumbrances registered against the property. This is a dangerous practice that may give the optionee a false sense of security. Think about the following:

* Everyone has heard that the Land Titles system “guarantees” title and, therefore, protects the registered owner. This is only a token protection if an imperfection in the title to mining rights, as opposed to surface rights, is involved. The “guarantee” is a right to be compensated (not a rectification of title); and, where mining rights are concerned in Ontario, the compensation is limited to twice the amount paid for the issue of the patent by the Crown. The solution is for the title to be searched right back to the patent by a qualified title-searcher (but make certain that this instruction is, in fact, followed because even many experienced title-searchers are not used to searching mining titles, and the procedure is out of the ordinary for “normal” land title searches).

* In the registry system, checking the book for the current owner is virtually useless. In order to establish a good and marketable title, it is necessary for the title-searcher to establish a good chain of title for the 40 years prior to the current dealing with the lands.

* If you use a lawyer to carry out a title search, you have not only the advantage of having the search done or reviewed by a trained legal practioner, but you can also expect from the lawyer a detailed report on the title. This report is a certification by the lawyer upon which you can rely. If it is wrong, the lawyer may be liable in damages for professional negligence and, in most provinces, lawyers are required to carry insurance against professional negligence.

* A proper title search includes reviewing most, if not all, of the registered documents in order to make certain that they are in proper order. This may sound tedious, but the mining industry is currently seeing the ingenuity of some people in finding what they perceive to be legal “loopholes” and in commencing legal actions with respect to them.

* In Ontario, a title search should include a brief review of the properties that abut the lands in which the interest is sought. The only thing that is required from this “adjoining lands search” is the name of each person that has an interest in the abutting lands. If these persons are not the optionor, then forget about them. If, on the other hand, the optionor is shown to have an interest in any piece of property that abuts the property that is to be optioned, then it is necessary to make the option specifically conditional upon compliance with the requirements of the Planning Act (a severance will have to be obtained from the appropriate governmental authority before the optionee can earn an interest in the property). If the option agreement does not contain such a condition, it can be void. It is a good practice to make all options subject to compliance with the Planning Act.

* In additon to the actual title, the Court offices should also be searched in order to make certain that there are no executions outstanding that might inhibit the ability of the optionee to obtain clear title. If there are any outstanding executions, they should be cleared up or the agreement should permit the optionee to pay them off in full from moneys that would otherwise be payable to the optionor upon exercise of the option.

Insofar as unpatented mining claims are concerned, in most Canadian jurisdictions, the records of the mining recorder can be relied upon to reveal the owner and any encumbrance holder, and it is not necessary to check with the mining recorder that his or her records are completely up to date. Sometimes there may be something in the “box” awaiting entry. In addition, an optionee cannot rely upon the record if the optionee has knowledge that the record is not complete, and, for example, someone has a beneficial but unregistered interest in the claims. In these circumstances, the optionee must make certain that the beneficial interest-holder is a party to the agreement as well as the registered owner.

Now with the title properly searched and the option or other acquisition agreement entered into, the optionee has to consider how to protect itself during the currency of the option and while it is looking at the property. If no effort is taken to protect its interests, the optionee could find itself facing a bona fide purchaser without notice. Under Ontario law, there are several things that can be done; and to a greater or lesser extent, the same protections are available in other Canadian jurisdictions (the comments here relate to Ontario laws only). Consider the following:

* The safest thing is for the optionee to have transfers of the title delivered by the optionor and to register the title in its name. It is fairly standard procedure where unpatented claims are involved, but, with some justification, a real property-owner (such as a farmer or cottage-owner) is usually most reluctant to pass title over to the optionee even with the usual covenant by the optionee to return it immediately and in good standing if the option is not exercised. It is always worthwhile to ask for transfers; after all, if you don’t ask, you certainly won’t get them.

* If the transfer of unpatented mining claims cannot be successfully negotiated, most mining legislation in Canada permits the registration of a document or some form of notice which will serve to put the public on notice of its contents. In Ontario, Mining Recorders are sometimes reluctant to accept such registration; but as they are permitted under the Mining Act, they must be accepted. It should, however, be remembered that the Ontario act requires that, to be registered, a document must be signed by the registered claim-holder. This requirement should be anticipated in the agreement.

* Most mining leases and patented lands are registered under the land titles or Torrens system of title registration which “guarantees” title (but, as indicated above, forget about any guarantee and protect yourself by a full title search.) In most Canadian jurisdictions, this system contemplates two forms of notice that may be registered: a) a caution will be permitted where the registrar is satisfied that the party attempting to register the caution truly has an interest in the lands. This sounds easy and straightforward, but it is sometimes a problem to convince a registrar that this is so. Upon registration, the property may not be dealt with unless the cautioner consents — very good protection. The life of the caution may be limited. In Ontario it has a life of five years but may be renewed. A caution is almost as good as a transfer of title. b) a notice is merely a notice on the title register that the holder claims to have an interest in the property. It does not prevent the owner from dealing with
the property, but it is notice to the public at large, and a third party deals with the owner at his or her risk. Registration of the notice is deemed to be actual notice to a purchaser, even if the purchaser has not reviewed the title abstract.

* If the property is registered under the registry system, an option for the purchase of land or a notice of an option to lease land may be registered for a period of one year (renewable annually). The notice is actually notice of the contents of the notice only and is not notice of the document to which it refers. In addition, the option agreement itself can probably be registered if it is considered to affect the title to the lands and if the parties are concerned that the public be on notice of all its terms. Any other document may be “deposited” against title, but, under Ontario law, a “deposit” will not constitute actual notice unless the party against whom notice is claimed can be shown to have read the deposit — hardly of very much use, especially if the usual mining practice of not searching title has been followed] Obviously, in these circumstances, the desirable protection is to obtain a transfer of title.

A further thing to consider is the possibility of being required to pay a land transfer tax upon transfer of the property or registration of a document against title. Usually such a tax is based upon the amount of consideration paid. It is arguable that, in an option or farm-in situation, the payments or work commitments are part of the consideration of the aggregate purchase price and not consideration for entering into the agreement, and, therefore, any tax should properly be postponed until an interest is obtained — the wording of the agreement may well decide this. In Ontario, there is a regulation which exempts mining rights acquired solely for mining purposes from land transfer tax, but if the property has both mining and surface rights, be prepared for an argument. The regulation contemplates the problem and calls for tax to be payable upon the reasonable value of the surface rights, but this will have to be negotiated with the appropriate governmental authority. If you are dealing with a mining lease with a term of fewer that 50 years, including renewals, there is no land transfer tax payable.

There are obviously many considerations to take into account when dealing with property interests, but the most important are still the basic ones — make sure you are getting what you think you are getting and, once you have a right to acquire it, make sure you protect that right. Karl J. C. Harries is a graduate mining engineer and partner with the Toronto law firm of Fasken & Calvin. The information in this article is summary and general in nature and is not intended to be taken or acted upon as legal advice.