Why this title insurer doesn’t owe the client’s improvement taxes

Canada’s top court has effectively upheld a decision that a title insurer isn’t on the hook for local improvement charges that become payable in the years following the closing of a real estate transaction.

FCT Insurance thus won its appeal over an Alberta company that sought to have its title insurance policy cover more than $1.4 million in additional property improvement taxes that became due seven months after the policy was issued.

The Supreme Court of Canada upheld the Alberta Appeal Court’s decision in the matter. As is customary, the Supreme Court does not give reasons for denying leave to appeal.

“Taxes that become ‘due or payable’ after the closing are excluded by the overriding guideline as to time that coverage is only available for defects ‘as of date of policy,’” Alberta Court of Appeal Justice Frans Slatter wrote for a 2-1 majority in a decision released in December 2022. “Clause 2(b) [in the title insurance policy] makes it clear that property taxes that become due or payable after the closing are not covered…

“It is implicit in the terms of the policy that all of the covered risks, including the one specifically relating to property taxes, are subject to the general proviso that they must exist ‘as of date of policy.’”

Furthermore, the Appeal Court ruled, given the policy wording, taxes that become due or payable in future years cannot be seen as being a defect or lien on the title.

“[E]very title in Alberta is subject to the expectation that property taxes (including local improvement charges) will be due or payable in future years,” the Appeal Court found. “The obligation to pay taxes in the future is an inherent burden on every piece of real estate imposed by statute that runs with the land, but the obligation on the taxpayer to pay taxes in the future is in no sense a ‘defect’ in the title.”

Related: Ontario Superior Court rules “saving harmless” implies a duty to defend

The unnamed Alberta business in the case, a numbered company, bought a parcel of land called “Lot 15,” which was subject to a local improvement charge.

Total improvements were originally budgeted for $3.7 million in 2011, payable over 15 years from 2013 to 2027. But due to cost increases, the charge was ultimately increased to $5.1 million, payable from 2016 to 2030.

The sale of Lot 15 closed on Dec. 2, 2015. The first annual installment of the revised local improvement charges fell due in June 2016.

The company purchased a title insurance policy on Nov. 23, 2015. Under the terms of the policy, the title insurer agreed to pay for “any defect in or lien or encumbrance on the title.” This included “the lien of real estate taxes or assessments imposed on the title by a governmental authority or public utility due or payable, but unpaid…”

But an exclusion in the policy denied coverage for any “defects, liens, encumbrances, adverse claims or other matters…attaching or created subsequent to date of policy.”

Since the date of the policy was Nov. 23, 2015, and the first installment of the local improvement taxes became due June 2016, seven months after the policy date, the exclusion applied, the Appeal Court ruled.

What’s more a “property tax” shouldn’t be considered a “defect” on the property’s title, the Appeal Court majority found, as cited above.

Feature image courtesy of iStock.com/vladwel