Entitlement to Post-Closing Property Tax Refunds: 80 Mornelle Properties Inc. v. Malla Properties Ltd.
80 Mornelle Properties Inc. (the “Vendor”) was the owner of an apartment building in Toronto prior to selling it to Malla Properties Inc. (the “Purchaser”) in October 2006. Before the sale, the Vendor retained lawyers to appeal the property’s tax assessment and continued to pursue the assessment appeal well after the transaction closed. The Vendor was eventually successful in this reassessment, with the result that a tax refund of $251,166.43 was owed for the period of 2003 to 2006.
The City of Toronto paid this refund to the Purchaser in compliance with section 306(2) of the City of Toronto Act, 2006. This section provides that property tax refunds are to be paid “to the owner of the land as shown on the tax roll on the date that the adjustment is made”. Upon learning of the refund, the Vendor asked the Purchaser for the refund less the portion of it that related to the period after the sale. When this request was refused, the Vendor commenced an application to force the Purchaser to disgorge a majority of the refund.
At trial, the application judge determined that, at the time the property was sold, the most that the Vendor could be said to have in respect of its assessment appeal was a “contingent prospect for receiving a tax refund in an amount yet to be determined”. As the Vendor could not have sued on the basis of such an interest, the Court concluded that this interest did not constitute a chose in action. The application judge then considered whether the doctrine of unjust enrichment could be leveraged so as to require the Purchaser to disgorge the refund. Although the case law favoured the Vendor on this point, the Court concluded that the operation of section 306(2) of the City of Toronto Act, 2006 (requiring payment to the owner of the land as of the date that the adjustment was made) constituted a juristic reason for the Purchaser’s enrichment.
The Court of Appeal reversed this ruling. It held that the Vendor’s application should succeed on the grounds that it both overpaid taxes on the property during the period in which it was the owner and took the necessary steps to have the taxes reassessed. Ultimately, the right to receive the proceeds of the assessment appeal was a chose in action – an intangible personal right enforceable by legal action. This chose in action did not automatically run with the property when it was sold and, as the Vendor did not explicitly assign this right to the Purchaser, it retained its entitlement to the refund notwithstanding the sale.
The Court of Appeal then considered whether the City of Toronto Act, 2006 should operate as a bar to the Vendor’s application. Writing for the Court, Gillese J.A. observed that nothing in the legislation indicated that the legislature intended to interfere with the rights of property owners. Since express wording is necessary if the courts are to interpret legislation as having adversely affected a person’s rights, it could not be said that the legislature intended section 306(2) to strip the Vendor of its right to sue for the refund. Given the findings that the Vendor retained a chose in action and that the City of Toronto Act, 2006 was not a juristic reason for the enrichment, the Purchaser was ordered to disgorge the refund less the portion of it that related to the period after the sale.
The Court of Appeal’s decision is consistent with the practice on a real estate transaction. In a typical transaction the parties would have specifically dealt with this matter by an undertaking of the Purchaser to pay over to the vendor the appropriate share of any refund if and when received.
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