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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 firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.