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Archive for July, 2020

Expensive lessons: Courts tell buyers to pay up!

Fighting failed real estate deals in court can be futile  – and expensive – as shown by the verdicts in two recent Ontario cases concerning easements.

In February, 2020, Mr H. and Ms Y. signed an agreement to buy a property, in Newmarket, from Mr and Mrs B. The contract price was $1,755,000 with a $75,000 deposit.

The property, a two-storey home with five bedrooms and five bathrooms, a pool, cabana and above-ground hot tub, has a title subject to two usage rights, or easements, sanitary and storm sewer access by the town of Newmarket. A standard title clause in the agreement said title had to be clear except for easements that included drainage, storm and sanitary sewers. A building location survey of the property, clearly showing the easements, was attached to the agreement as a schedule. It also contained references to the registered easements.

Prior to closing, the lawyer for the buyers submitted a formal demand that the easements be removed from title. The sellers’ lawyer responded that the title objections were not valid.

The buyers then refused to close the deal and the sellers sued the buyers.

 Justice Jill Cameron concluded on June 28 there was “an inference that the existence of the easements is not the real motive behind seeking rescission of the agreement.”

Cameron noted that the sellers had good title to the property and could convey substantially what the purchasers contracted to get. The sellers were awarded the $75,000 deposit that the buyers had paid.


A similar case was heard in Newmarket court this past February. In 2017, the buyers agreed to purchase a house in Aurora, for $2,130,000. They paid a $100,000 deposit.

The title search of the property revealed two registered sewer easements to the town of Newmarket, an easement to Bell Canada for maintenance to telecommunications facilities, and easements to Aurora Hydro and Aurora Cable TV. A survey of the property attached to the offer depicted the easements and their locations.

The lawyer for the buyers demanded the easements be removed from the property’s title. The sellers refused and the deal did not close. The sellers resold the property for $1,700,000 — a loss of $430,000.

In awarding the sellers $430,000 plus $18,000 in costs without the need for a trial, Justice Gregory Mulligan found that the buyers had breached the contract and noted “there is no indication as to how the property would be serviced by the utilities, including hydro, telephone or cable TV, if the easements were removed.”

As I see it, three important takeaways from these cases are:

1. There is little point in litigating a failed real estate transaction on the basis of standard easements on title.

2. Always attach a land survey to a purchase agreement.

3. Courts do not like technical excuses for getting out of a purchase contract.

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

 

 

 


A buyer’s hefty deposit is forfeited when a judge finds…

he “deliberately” breached his purchase contract.

A buyer of a pre-construction townhouse found out the hard way what can happen if the property is resold before its closing date and without the builder’s permission.

Virtually every Agreement of Purchase and Sale for a pre-built home or condominium contains a prohibition on resale until after the final closing of the transaction and registration of a deed to the purchaser. The reason for the prohibition is so that early purchasers will not compete with the builder’s marketing of unsold units.

In March 2016, Mr W. bought a townhouse in a pre-construction project in Markham, from a builder operating under the name 2426483 Ontario Limited. The contract price was $1,188,800.

Mr W paid the builder deposits totalling $150,000, and in July, 2019, he listed the unfinished home for sale on the Multiple Listing Service (MLS). This was a breach of a clear prohibition in the purchase agreement. The agreement also contained a clause stating that if a purchaser breached the prohibition, the builder could both terminate the agreement and keep the deposit and any other monies paid.

When the buyer was notified by the builder’s sales manager that the MLS listing was a breach of contract, he immediately removed it.

In December, 2019, the buyer requested and was refused permission to resell the property before final closing. Despite this, he again listed the property for sale and subsequently signed an agreement to sell it for $1,290,000 with an April, 2020 closing date.

When the builder saw the listing and sale posted on the MLS website, its lawyer notified Mr W that in light of his contract breach, the builder had terminated the agreement and forfeited the deposit and occupancy fees paid. Mr W was also told to surrender possession of the unit.

Mr W and the new purchaser then terminated their agreement of purchase and sale with an option to revive it if the dispute with the builder was settled.

In June, 2020, in a virtual hearing before Justice Paul Schabas in Toronto, Mr W asked the court for what is known as relief from forfeiture of his deposit. In analyzing the claim, Schabas noted that the court must consider the conduct of the buyer, the gravity of the breach of contract, and the disparity between the value of the forfeited deposit and the damage caused by the breach.

“In this case,” Schabas wrote in his decision, “The buyer knowingly and deliberately breached the agreement when he listed and sold the townhouse in December 2019 and January 2020.”

The judge noted that at the time Mr W resold the unit, the purchaser could have bought one of the builder’s nine unsold townhouses.

Schabas found that Mr W did not come to court with “clean hands” because his conduct did not demonstrate reasonable diligence to comply with the agreement.

Since the deposit was 12.6 per cent of the purchase price in the agreement, the judge found it would not be unconscionable for Wang to forfeit his $150,000 deposit plus all the occupancy fees that had been paid.

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.