QUICK HITS

 

• When the buyers of a $937,400 home backed out of the deal, they claimed the contract was void because deadlines had been missed.
• The court found that their actions—like paying deposits and not cancelling the agreement earlier—showed they intended to proceed until they later breached the contract. 
• The seller was awarded $232,400 in damages, the difference between the original price and eventual resale price. 

When a buyer fails to complete the purchase of a property, disputes often arise over who is at fault. In some cases, buyers may argue that the seller breached the agreement by missing deadlines. In such cases, the doctrine of repudiation of contract comes into play. It requires an objective evaluation of both parties’ actions, as demonstrated in the case Vandermolen Homes Inc. v. Mani.

Key facts of the APS

In January 2022, the defendant buyers signed an agreement of purchase and sale (APS) for the purchase of a single-family home in Exeter, Ont. from the plaintiff builder for $937,400, with a scheduled completion date of Aug. 31, 2022. The buyers paid a deposit of $5,000 upon signing.

The APS was conditional upon approval by the buyers’ lawyer and arrangement of suitable financing. The deadline for confirmation of the fulfillment of conditions was 6:00 pm on Jan. 20, 2022. A further deposit of $88,740 was due upon removal of the conditions.

On Jan. 20, 2022, the buyers offered to extend the conditional terms to Jan. 26, 2022.  The offer to extend was stated to be irrevocable until 11:59 pm on Jan. 21, 2022, failing which the offer to extend became null and void. The seller did not sign the confirmation of acceptance until Jan. 22, 2022. On Jan. 26, 2022, the buyers nevertheless signed a waiver of the conditions and paid the second deposit.

Breakdown in communication and escalation

Nothing further occurred until May 2022, when the seller began to email and text the buyers regarding interior decor selections, with no response. A dispute subsequently arose over whether the buyers had received these emails and texts.

The buyers took the position that since they heard nothing from the seller for several months following Jan. 26, 2022, they assumed the deal was not proceeding. However, there was no evidence that the buyers contacted the seller to request the return of their deposits or to notify them that they did not intend to complete the purchase during that time period.

On Aug. 10, 2022, the seller’s real estate lawyer wrote to the buyers’ lawyer asking how they intended to take title. On Aug. 12, 2022, the seller spoke to one of the buyers regarding a pre-delivery inspection. The buyer advised that he needed to speak to his wife (the co-buyer) who was in India at the time. He gave no indication that the purchase would not be completed.

Repudiation of the agreement and market impacts

On Aug. 17, 2022, the buyers contacted the seller and cancelled the pre-delivery inspection, which was scheduled for later that day.  On the same day, the buyers’ lawyer advised the seller for the first time that they would not be able to complete the purchase.

On Aug. 29, 2022, the seller’s lawyer spoke to and emailed the buyers’ lawyer to confirm whether or not the buyers were going to complete the transaction. The buyers’ lawyer confirmed that his clients were unable to close the transaction and requested that the property be re-listed so that “the damages can be lessened”.

The seller retained a Realtor and listed the property for sale for $849,000, but there were no offers. In February 2023, the price was reduced to $799,900, without success, and in April 2023, the listing price was dropped to $749,900. While conditional offers were received, the property did not sell.

In September 2023, the price was reduced again to $724,900 and the property was finally sold for $705,000 in October 2023.

The seller sued the original buyers for damages of more than $175,000 relating to their breach of the APS, and brought a motion for summary judgment, arguing that this was a straightforward case of buyers’ remorse.

In response, the buyers took the position that the APS was “dead” when the conditions in the APS were not fulfilled by Jan. 21, 2022. As a matter of law, they pointed to the term in the APS which stated “time is of the essence”, which generally means that a time limit in an agreement is essential, such that breach of the time limit will permit the innocent party to terminate, or rescind, the contract.

Prior decisions have held that the effect of a party’s repudiation of an agreement depends on the election by the non-repudiating (or “innocent”) party as to whether or not to terminate the agreement. If that party treats the contract as still being in full force and effect, the contract remains in force and effect for both sides.  However, if the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligations.

Determining who is in breach of contract

To determine whether the party in breach has an intention not to be bound by the agreement, the courts assess whether a reasonable person would conclude that the breaching party no longer intends to be bound by it.

In the case at hand, the buyers argued that they had not expressly indicated that they wished to revive the APS after the deadline for waiving conditions. The court was not persuaded by this argument, however, given the buyers’ own conduct in treating the APS as still being in force despite the deadline missed by the seller on Jan. 21, 2022.  

In that regard, the buyers delivered a waiver of conditions on Jan. 26, 2022, and paid the second deposit by cheque, which was cashed by the seller without any protest from them. The seller continued to construct the home over the ensuing months and the buyers did not request the return of the deposits totalling almost $100,000, prior to the commencement of the litigation. Viewed objectively through the lens of a reasonable person, the buyers did not demonstrate that they no longer wished to be bound by the APS.

The court’s assessment and damages 

The court therefore concluded that the APS became binding on Jan. 26, 2022. Although the APS could have been terminated by the buyers after the seller missed the deadline, they did not elect to treat it as at an end.  Rather, they continued to treat the APS as being in full force and effect until Aug. 17, 2022, when it was anticipatorily breached.

As for damages, the measure for contractual breach is generally “expectation loss,” namely the amount required to put the innocent party in the position it would have been in had the contract been performed as agreed.

Although the buyers contended that the seller had failed to take appropriate steps in marketing the property for sale, they did not obtain an appraisal to challenge the price obtained by the seller. It is well-settled law that the onus of proof to establish a failure to mitigate is on the defendants. The buyers failed to meet this onus.

The seller was therefore entitled to the full difference of $232,400.00 based upon the lower sale price of the home, along with property taxes and utilities paid during the relisting period, less the deposits paid. While this figure may seem high, the buyers are fortunate that the damages were not substantially greater. 

There have been many cases in Ontario in 2024 where the difference between the original contract price and the subsequent resale price obtained by a seller has been much larger due to the change in market conditions. 

QUICK HITS

 

• A Realtor misrepresented the location of a new-build property to buyers, leading them to believe it was in Brampton when it was actually in Caledon, three kilometres away. 
• After discovering the mistake, the buyers sued, and the Ontario Court of Appeal held the Realtor and their brokerage liable for negligent misrepresentation.
• The court ordered them to repay the buyers’ $120,000 deposit.

In some cases, misrepresentations made prior to the signing of an Agreement of Purchase and Sale (APS), may allow a buyer to sue for damages, as demonstrated by Zhang v. Primont Homes (Caledon) Inc., in which a real estate agent was found liable to his clients for misrepresentation concerning the location of a development property.

Location mix-up in new build purchase

In February 2017, the buyers agreed to buy an investment property to be built in a new subdivision by a developer for $1.2 million, with a deposit of $120,000. The transaction was set to close in 2019.

The buyers had been told by their real estate agent that the property was located at or near a specific intersection in Brampton, Ont. However, in May 2018, the buyers drove by the intersection to check on the progress of the development and discovered that the property that they had agreed to purchase was not located at the site indicated by their agent but rather in Caledon, Ont., about three kilometres north of their expected site.  

Buyers take legal action

The buyers then took the position that they should not be required to close the transaction and commenced litigation against various parties, including their agent, his brokerage and the developer. The buyers argued that the defendants had misrepresented the location of the development and that they were entitled to refuse to complete the purchase of the property and recover their deposit. They also claimed damages for lost profits. The developer counterclaimed for damages flowing from the buyers’ repudiation of the APS.

Prior to the trial, the buyers settled with the developer and agreed that it was entitled to keep the $120,000 deposit. In exchange, the developer abandoned its counterclaim.

After a trial in the Ontario Superior Court of Justice, the real estate agent and brokerage were ordered to pay $120,000, the deposit amount, to the buyers, with interest, and costs of $30,000. The trial judge declined to award the buyers any damages for lost profits.

On appeal, the agent and brokerage argued that the trial judge erred in finding that they negligently misrepresented the property’s location or that the misrepresentation was the cause of any damages suffered by the buyers. The Court of Appeal for Ontario disagreed.

The first ground of appeal was whether the trial judge erred in finding that the appellants negligently misrepresented the property’s location and whether the buyers relied on this misrepresentation.

The Court of Appeal noted that the trial judge made findings of fact based on the divergent accounts of the parties’ interactions and communications prior to the signing of the APS. The trial judge assessed and preferred the buyers’ evidence concerning what the appellants allegedly communicated about the location of the proposed development. Further, the misrepresentation about the property’s location was a key factor in the buyers’ decision to invest their money in the development because they believed “it was in a ‘mature’ community with large houses and schools”. Had they known of the property’s actual location, the buyers would not have agreed to sign the APS or pay the deposit.

No expert evidence required

The appellants further argued that the buyers ought to have been required to adduce expert evidence on the standard of care of a real estate agent or broker to establish liability. As a general rule, expert evidence is required to support a claim against a licensed professional, such as a real estate agent.

A breach may, however, be established without the need for expert evidence concerning “non-technical matters or those of which an ordinary person may be expected to know to have knowledge. The trial judge found that the appellants’ representation that the property would be built near an intersection in Brampton as opposed to a completely different location three kilometres distant was an example of a “non-technical” matter. The Court of Appeal agreed with the trial judge that expert evidence was not required to find that the appellants’ misrepresentation was negligent.

Causation and legal principles 

The second ground of appeal advanced was that the trial judge erred in finding that the negligent misrepresentation was the legal cause of any loss to the buyers. The appellants argued that the buyers could not, as a matter of legal principle, recover against them without first recovering damages against the developer.

The Court of Appeal disagreed that the buyers were required to prove that they had the right to repudiate the APS as a condition precedent to any recovery against the appellants. The appellants relied on a British Columbia decision which also involved a buyer’s repudiation of an agreement due to alleged misrepresentations of the property’s boundaries. However, the court in the B.C. case had concluded that the buyer was not actually entitled to repudiate the contract.

The Ontario Court of Appeal did not agree that there was a general rule established by the decision in the B.C. case that any plaintiff who agrees to buy property based on misrepresentations of any kind by a third party, such as a Realtor or lawyer, is legally foreclosed from recovering damages for that misrepresentation if they fail to complete the purchase.

In the Court of Appeal’s view, the issue of causation was distinct from a plaintiff’s entitlement to assert a separate cause of action for negligent misrepresentation. In a case where a given wrong supports an action in contract and in tort, the party may sue in either or both, except where the contract indicates that the parties intended to limit or negative the right to sue. Nothing in the APS precluded the buyers from suing their own real estate agent or broker for negligent misrepresentation, whether or not they chose to pursue a claim in contract against the developer.

Consequences of misrepresentation

Lastly, the appellants argued that the buyers were themselves the authors of the damages they claimed since the property had increased in value between the time the buyers executed the APS and the trial. Had the buyers not repudiated the APS, they would have acquired a property worth $1,800,000, or nearly $600,000 more than they would have had to pay for it. The appellants argued that the buyers could have mitigated and avoided any financial loss had they not repudiated the APS.

The Court of Appeal noted that in claims of negligent misrepresentation, courts generally focus on the date that a misrepresentation is discovered.

In this case, once the buyers discovered the misrepresentation in 2018 (months before the scheduled completion date), they had to take reasonable steps to mitigate a potential loss, which involved deciding whether to proceed with the purchase of the property. They chose to take the position that the APS was null and void, alternatively, that they were entitled to repudiate it. Ultimately, this meant they were out of pocket for $120,000 after settling the claim with the developer.

Importance of accuracy in property details

The appellants’ position turned on the argument that the buyers should have foreseen that the property would increase in value when they discovered the misrepresentation, even though the property was not as well-situated and therefore not as attractive an investment as they had been led to believe. 

However, they did not obtain a retrospective appraisal showing that the property had already increased in value at the time the buyers discovered the issue with the property’s actual location, nor was there any evidence proving that the buyers should have realized that they would not suffer damages if they proceeded with the purchase. In the Court of Appeal’s words, “(The) appellants should not be able to escape the legal consequences of their negligence because the (buyers) did not take that risk and market conditions happened to improve.”

This ground of appeal and the appeal in its entirety were therefore dismissed.

The decision shows the potential consequences of misrepresentations that are made and found to have been relied upon by a party when deciding to enter into an APS.