A recent decision of the Ontario Superior Court of Justice (see below) provides a timely reminder that parents who want their cottages to remain in the family should consider a plan for orderly succession in ownership, and put those instructions in writing.
The court ruling, released in January, concerns Margaret Sheldrake, who owns two cottages in Bancroft, Ont. Although they were in bad condition, she wanted them to remain in the family. Back in 2000, she made an agreement with her son Douglas that he would move to the cottages and renovate them with her assistance. In return, he would receive title to both cottages on his mother's death or possibly earlier.
The arrangement would achieve his mother's objective to keep the cottages in the family. At the time, the cottages were worth about $300,000. Margaret told Douglas that the other siblings would be appropriately compensated in her will.
In the spring of 2001, mother and son confirmed the agreement orally and a few months later, put it in writing. Margaret told Douglas that the properties were his and she gave him the keys.
Douglas resigned his job in Toronto and moved into the cottages fulltime. The intention was that he would live in one and rent out the other when renovations were complete.
Over the next few years, Douglas arranged for and oversaw extensive repairs and improvements to both buildings. He did some of the work and contracted out the rest. During this period, Margaret provided most of the financial assistance, and from time to time, paid Douglas a stipend for his living expenses.
In the fall of 2003, the relationship between mother and son began to deteriorate. Margaret wanted to sell the cottages and compensate Douglas financially in her will. Margaret's other son, Donald, became increasingly involved in acting for his mother, and the relationship between the brothers became acrimonious.
In March 2004, Donald emailed Douglas to say that he had taken over control of his mother's assets with a power of attorney.
"It's all mine," he wrote, "I'm keeping everything, the rest of you can all die as far as I'm concerned."
By early 2006, Margaret had obtained a court order evicting Douglas from the cottages, and he moved out.
Eventually, Douglas sued his mother, asking the court to declare that he was the beneficial owner of the two cottages and that his mother held them in trust for him.
When the case came up for trial last year, Douglas was the only party to present evidence. Margaret did not testify and did not call any evidence on her behalf.
Justice A. deLotbinière Panet found Douglas to be a credible witness and accepted his evidence on all major issues.
The judge noted Margaret's failure to give evidence weighed heavily against her and amounted to an implied admission that her evidence would not support her position.
In the end, the court found there was an agreement between mother and son. Douglas' actions in moving into the cottages and repairing them supported his position there was an agreement to give him the cottages.
The judge ruled that Douglas was the beneficial owner of the cottages and that his mother was holding them in trust for him during her lifetime. Douglas was entitled to possession of the cottages and had to pay ongoing expenses of operation and maintenance except for property taxes, which were the responsibility of his mother.
The Sheldrake case illustrates how cottage ownership can stir up more emotion and sentiment than other types of real estate ownership. Cottagers who want their summer retreats to remain in family ownership through succeeding generations would be well advised to consult with their children and seek advice from tax and legal professionals.
Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly. E-mail email@example.com
July 21, 2008Legal |