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Archive for September, 2020

Ensure your home purchase deal includes an inspection immediately before closing

It’s the night before closing, the seller has moved out and the buyer wants to do a last-minute inspection to ensure there’s been no damage since the last visit.

Is she or he entitled to a day-of-closing inspection if there is no clause in the purchase agreement allowing a final check?

The court case most often cited as support for a right to a final inspection is a decision of the Waterloo County Court in 1979.

Before the closing of what the court called a “simple and routine residential purchase and sale,” the buyer’s lawyer asked the seller’s lawyer for a final inspection on the morning of closing.

A standard clause in the offer said that the property was at the seller’s risk until closing, and if there was any substantial damage, the buyer could either terminate the deal or close and take the proceeds of any insurance.

The lawyer for the buyer brought a successful court application which gave his client a right to the inspection. Judge Francis Costello held that “It … seems ridiculous that (the buyer) should have to complete the transaction and pay over his money before ascertaining whether or not he had been entitled to terminate the agreement prior to completing it.”

The court case was determined under the Vendors and Purchasers Act which allows the parties to ask a court to determine a question arising out of a real estate contract. As a result, although its reasoning is persuasive, the court’s decision is not binding on any other judges.

The decision in this case was endorsed in a 2104 case in the Supreme Court of British Columbia. The dispute in the case of buyers involved the purchase of a $5,150,000 condominium on the Vancouver waterfront, with a deposit of $500,000.

The purchase agreement required the unit to be in “substantially the same condition at the Possession Date as when viewed by the Buyer on April 12, 2012.”

Prior to closing, there was extensive work being done to the unit to remedy mould and fungal damage. The unit was a construction zone and not nearly finished.

The buyer was denied an inspection by the seller and refused to close. The seller sued to keep the deposit and also for damages, but the court — relying on the Harkness case — decided that the buyer was justified in refusing to close.

The court noted that the buyers were “implicitly entitled to inspect the apartment before closing.” The sellers were not allowed to keep the deposit.

In his decision, Judge Reginald Harris wrote, “I agree with the (buyers) that they should not be expected to hand over approximately $5 million without a closing inspection. This would be analogous to purchasing a dozen eggs without an opportunity to first open the carton to ensure none are broken

There are two takeaways from these cases. The first is that there is no such thing as a “simple and routine residential purchase and sale.” Each purchase requires a high degree of due diligence.

And the second is that every purchase agreement should always contain a right of inspection immediately before closing.

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.

 


An easement hinges on whether it restricts enjoyment of the property

Can a buyer ever back out of a purchase on the basis of registered easements that entitle third parties to particular rights on the land?

My last column dealt with two recent cases where buyers refused to close their deals because there were registered utility easements, or usage rights by the local municipality, Bell Canada, hydro and cable TV suppliers.

In another case the buyers asked the court for a declaration they could rescind the purchase contract and get a refund of their deposit on the basis of two registered easements for storm and sanitary sewers. The buyers’ application was dismissed.

In another case, buyers got hit with a judgment for $430,000 after they refused to close a purchase due to typical registered utility easements.

But there have also been cases where registered easements were found to entitle the buyers to back out of their purchase agreements. The cases turn on whether the easements materially affect the use of the property.

Back in 2007, a buyer contracted to buy a Toronto property and paid a deposit of $60,000.

The title search revealed a 20-foot wide easement for storm and sanitary sewers covering 3,400 square feet which was most of the rear garden, and 26 per cent of the entire lot. In addition, a two-storey gazebo was sitting on top of the easement.

The buyer went to court to rescind the agreement. Justice Maureen Forestell set out the four legal tests for whether an easement materially affects the use of the property:

1) the location of the easement;  2) its size;   3) the point of access; and  4) the owner’s enjoyment of the property.

Justice Forestell found that the yard — an integral part of the enjoyment of the residential property — might have to be dug up to access the sewers. She decided in favour of the buyer and ordered the return of the deposit.

Another easement case went to the Court of Appeal in 2018. A buyer agreed to buy a property in Kleinberg. In the agreement, the buyer acknowledged the existence of an easement in favour of TransCanada Pipeline (TCPL). But there was an undisclosed, second easement registered on title that ran directly under the swimming pool, patio and cabana.

A letter agreement, also on title, required the owner to sign a further agreement with TCPL acknowledging that it had the right to remove the pool and cabana if necessary, with costs shared between the pipeline and the owners.

The purchase and sale agreement made no reference to the second TCPL easement or ongoing litigation between the owner and TCPL.

When this came to the buyer’s attention, he requested the return of his $50,000 deposit and the sellers refused.

At the court hearing in 2016, Justice Robert Charney ruled that the undisclosed easement could significantly affect the buyer’s use and enjoyment of the property. He ordered the return of the $50,000 deposit. The Court of Appeal dismissed the seller’s appeal.

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.