P.E.I. lot owners lose appeal over changed water-system ownership promise

Three P.E.I. subdivision lot owners have lost their appeal seeking to enforce an original promise that interested owners would receive ownership of their community’s water infrastructure and common areas.

The Prince Edward Island Court of Appeal held that the developer and provincial government could amend their subdivision agreement before the promised benefit became due. In Murphy, Murphy & Sans Investment v Stanhope Cape, 2026 PECA 14, decided September 11, 2026, the court upheld dismissal of the owners’ lawsuit and awarded the developer $20,000 in all-inclusive appeal costs.

The amendment did not eliminate every obligation to transfer the amenities. It changed the recipient: instead of the original arrangement for interested Stanhope Cape Estates lot owners, the revised agreement required transfer to a homeowners’ association intended to serve that subdivision and neighbouring Lighthouse Point.

An ownership promise tied to the last lot sale

The dispute arose from a 1998 agreement between the developer and the province for Stanhope Cape Estates, a 10-lot subdivision on P.E.I.’s north shore. The agreement required the developer to transfer the water system and common areas to a separate corporation, then transfer that corporation’s shares to interested lot owners when the final lot was sold.

The common property included the pump, well and water system, private streets, recreational open space, access rights and buffer areas. The agreement was made with the government, not directly with the lot purchasers.

A neighbouring 12-lot subdivision, Lighthouse Point, was later developed. Corporate transactions and easements brought the two developments into a common water-system arrangement.

In April 2016, the developer and province amended the agreement to require transfer of the water infrastructure and common areas for both subdivisions to Lighthouse Point Homeowners Association Inc., intended to be controlled by owners from both communities. The final Stanhope Cape Estates lot was not sold until September 2017. The association was incorporated that December.

The appellants, Stephen and Aileen Murphy and SANS Investments Inc., owned three lots. They sought remedies designed to enforce the original ownership arrangement rather than the amended one.

What the deeds did—and did not—promise

At trial, the owners relied primarily on section 8(3) of P.E.I.’s Planning Act. That provision can make certain positive covenants—promises to do something for the benefit of other landowners—run with the land and bind subsequent owners.

The trial judge accepted that the statute provides a way to create such enforceable obligations, but found that the requirements had not been met for the ownership transfer the appellants claimed. The appeal court agreed.

Justice Thomas P. Laughlin, writing for a unanimous panel, also considered the owners’ common-law argument. The original promise was made to the government. The appellants were not its successors or assignees, and the subdivision agreement itself had not established the land relationships needed for their claimed covenant.

The owners’ deeds stated that their properties were subject to the 1998 subdivision agreement. But the court rejected the argument that this reference locked in the agreement’s original transfer provisions.

Read in context, the wording gave notice that the lots were subject to the agreement. It did not turn a conditional future benefit into an immediate entitlement or prevent the original contracting parties from amending the agreement. The deeds separately contained restrictive covenants, but did not set out the specific ownership-transfer covenant the appellants sought to enforce.

The statutory route did not change that conclusion. Section 8(3) requires, among other things, a covenant between the developer and subdivision landowners made under the agreement and expressed to run with the land. A general reference to the subdivision agreement in these deeds was insufficient. The ruling is not a blanket finding that positive covenants can never bind later owners.

The timing of the amendment was decisive

The owners also argued they could enforce the original agreement as third-party beneficiaries. Contract law sometimes permits a person who did not sign an agreement to claim an intended benefit under it.

Here, however, the ownership benefit remained conditional on the final lot sale. That had not happened when the developer and province amended the agreement in April 2016. The agreement did not prohibit them from making that change.

The court distinguished a case involving successor landowners enforcing an existing obligation: these owners were not successors to the government, and the claimed benefit had not become an accrued right before the amendment.

The panel allowed new common-law and third-party arguments to be raised on appeal because of the unusual record and absence of evidentiary prejudice. It nevertheless rejected them. That procedural allowance was not a general invitation to introduce new theories after trial.

The appeal was dismissed. The $20,000 costs order compensates the successful developer for the appeal; it is not a damages award. The decision rejects enforcement of the original arrangement sought in this lawsuit, not the existence of the amended transfer framework.