Sometimes having family willing to assist with financial help can be extremely beneficial. However, we’ve often seen that if there is one thing that can drive a family apart, money is it. While contracts can go a long way to minimize the likelihood of litigation in the event of a falling out, there are no guarantees. Such was the case in a recent decision from the Ontario Court of Appeal when a separation caused one of the parties’ parents to call for repayment of a loan.

A family loan

The husband and wife, who were married in 2001, owned a home together. In 2007, the wife’s parents (“the father” and “the mother”) loaned the couple $216,000 for improvements of the property, including the construction of a “granny suite” which they moved into. The father continued to live in the granny suite after the mother died in 2013.

The parties agreed to a License Agreement, which they drafted with the help of counsel. The agreement stated that the loan, which was registered at $165,000, would be secured by a demand mortgage. The father or mother could not register the mortgage agreement on title unless they first provided 14 business days’ notice of demand for payment. Only after those 14 days were up could the mortgage be registered.

The marriage falls apart

The husband and wife separated in 2015. The father unsuccessfully attempted to register the mortgage before ending up before a motion judge who issued a summary judgment. The judgment explained what would happen if the father was successful in his application,

“If (the father) is entitled to the mortgage, or other relief which recognizes that the parties owe Gus the amount set out in the Agreement and the mortgage, that amount will be included in the Net Family Property calculation of the parties as a debt owed equally by them to (the father).”

However, the husband said the money was not a loan, but a gift. The motion judge did not agree, writing,

“I am satisfied based on the jurisprudence applied to the evidence in this case, that there was a clear demonstration that the money advanced to complete the granny flat, secured by a demand mortgage, was a loan and not a gift. There was no evidence that the money advanced was a gift, except (the husband’s) personal belief that it was.”

On appeal

The husband appealed on the grounds that the motion judge erred in determining the agreement was a license rather than a lease of property. However, the court was quick to dismiss this, stating that the word “license” is printed all over the contract. The court stated,

“If (the mother and father), (the wife’s) parents, intended to give $165,000 to (the husband and wife), they hardly needed to engage separate lawyers to negotiate and ultimately finalize a 12-page, 12 section formal document with the title ‘Licence Agreement’ and a Schedule titled ‘Mortgage Agreement’. There is nothing in these documents to even remotely suggest that (the mother and father) were making a $165,000 gift to (the husband and wife). We agree with the motion judge: “If the advance was a gift, the drafting and execution of the Agreement makes no sense.”

If you are contemplating a separation, or have already begun the process, contact NULaw in Toronto as soon as possible. Obtain experienced legal guidance and ensure that any issues relating to property get the attention they deserve. Contact us online or at 416-481-5604 to book a consultation.

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