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

 

• In Langen v. Sharma, buyers who agreed to purchase a $2.9-million home later discovered discrepancies in the listing’s tax and square footage information, affecting their financing.
• They requested a price reduction and an extension, which the sellers denied, leading to the buyers backing out.
• The court upheld the sellers’ position, citing an “entire agreement clause” that blocked the buyers from relying on listing representations in their legal claims.

When deciding to buy a property, buyers may review various representations in the real estate listing which purport to list the property’s key facts such as the square footage and measurements of various rooms. 

One statement typically found in the listing is the amount of the recent year’s municipal property taxes, which may be relevant to a buyer’s decision as to whether they can afford to own the property. However, if a representation in the listing turns out to be inaccurate, this may not entitle a buyer to back out of a transaction.

In the case of  Langen v. Sharma, the buyers entered into an agreement of purchase and sale (APS) to purchase a home in Brampton, Ont. from the sellers for $2.9-million. The transaction was supposed to close in August 2022.

Pricey mistake

The listing for the property stated that it contained at least 6,900 square feet of living space, approximately 4,800 of which was above ground. The buyers visually confirmed that those dimensions were reasonably accurate but did not make specific measurements.

The listing also stated that the municipal taxes on the property were $7,297.03 for 2021, which was approximately $600 to $700 more than the buyers were paying on their existing home. The stated amount of assessed taxes was a factor in their assessment of whether they could afford the property.

Square footage and taxes

A few weeks before the scheduled completion date, after the APS was signed, the buyers learned from their mortgage broker that they could not obtain financing to buy the property because the municipal taxes were incorrect due to a discrepancy in square footage. 

The sellers had made renovations to the property that were not brought to the attention of the Municipal Property Assessment Corporation (MPAC). MPAC had relied on the pre-renovation square footage for the property in making the assessment for the tax figure stated in the listing. A correction in the assessment would increase the taxes on the property. Indeed, MPAC subsequently reassessed the property and the property taxes became $10,050.

Buyers request concessions as tax liability changes

As a result of being unable to secure financing on the scheduled closing date, their concern about an increase in taxes going forward, and the possibility of back taxes being owed on the property, the buyers requested a three-month extension of the closing date and a $200,000 reduction in the purchase price.

In response, the sellers proposed an extension of the closing date to Sept. 16, 2022, conditional on the buyers paying a further deposit of $25,000 and delivering their mortgage commitment or approval at least one week prior to closing. The buyers rejected these conditions and refused to complete the transaction.

Sellers resell and pursue legal action

Although the sellers eventually re-sold the property to another buyer for $2.5 million and incurred over $25,000 in carrying costs, the sellers brought an application against the original buyers for forfeiture of the $100,000 deposit and damages for breach of the APS.

In response to the application, the buyers claimed that they were entitled to rescind the transaction because the sellers had misrepresented the amount of municipal taxes. They also argued that the sellers had acted in bad faith by refusing to grant an extension to accommodate the buyers’ efforts to obtain financing.

Innocent misrepresentation and the entire agreement clause

The application judge first considered the nature of the alleged misrepresentation by the sellers concerning the municipal taxes. The buyers argued that they were entitled to rescind the APS on the basis of a non-negligent, “innocent” misrepresentation of a fact that was material to their decision to enter into the transaction.

However, the buyers’ position that they relied on the innocent misrepresentation faced an insurmountable hurdle due to the terms of the APS, which included an “entire agreement clause” stating as follows:

This Agreement including any Schedule attached hereto shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement, or condition which affects this agreement other than as expressed herein.

In Ontario law, an entire agreement clause operates as a general bar to claims for innocent—as opposed to fraudulent—misrepresentations.

Seller’s duty versus buyer’s expectation

In the case at hand, the buyers did not argue that the misrepresentation concerning the property taxes in the listing was intentional or fraudulent. The application judge therefore concluded that the entire agreement clause in the APS precluded reliance by the buyers on the alleged misrepresentation.

As to whether the sellers had acted in bad faith by failing to accommodate the buyers’ request for an extension, the application judge referred to the governing principles of good faith contractual performance. The duty of good faith does not require that contracting parties serve each other’s interests. However, they may not seek to undermine those interests in bad faith.

The court’s decision

The application of the doctrine of good faith to the facts at hand turned entirely on the application judge’s conclusion that the entire agreement clause in the APS governed the dispute. Since the application judge rejected the buyers’ position that the sellers were obligated to accommodate their request for an extension due to the misrepresentation, the sellers did not act in bad faith in relying upon the terms of the APS.

The application judge therefore decided in favour of the sellers.

The parties did not dispute the quantum of damages that would follow the application judge’s decision on liability. In the circumstances, the buyers will likely be liable to the sellers for the difference in sale prices and the carrying costs.

Lessons learned: Verify listing facts before signing

Given the consequences illustrated in the decision, buyers should attempt to independently verify important information in a listing before entering a binding agreement that contains an entire agreement clause or ensure that the agreement contains terms that confirm any representations which are of concern. 

While there may be situations where a party is not entitled to rely on an entire agreement clause due to fraud or other misconduct, the courts will certainly consider whether such a clause is a bar to any claims for factual representations that could have been verified before entering into the agreement.

Co-authored by Christina Tassopoulos

QUICK HITS

 

• When a property is owned by 2+ people, one owner might want to sell it against the wishes of the others. Under Ontario’s Partition Act, this is typically allowed. Stothers vs Kazeks is one of the rare exceptions.
• In 2005, Stothers moved out of the jointly-owned home with Kazeks and applied to sell this year, after being diagnosed with terminal cancer and needing to get her affairs together.
• Kazeks showed more than enough evidence that a forced sale would cause serious hardship financially, personally and emotionally, and the court ruled in his favour.

When properties are owned by two or more people, situations can come up when one of the owners wishes to sell the property against the wishes of the other.

The Ontario Partition Act provides a way for joint tenants, tenants in common, or other parties with an interest in any land to request an order from the court for the partition or sale of the land. In the majority of Partition Act cases, the courts are inclined to grant the order that the land be partitioned or sold since it would be unfeasible for the co-owners to be required to continue to hold the property in the face of an ongoing disagreement.

Conversely, the decision of the Ontario Superior Court of Justice in Stothers v. Kazeks, 2023 is an example of a rare situation in which a Partition Act application was refused.

The history

In Stothers, the applicant (Stothers), and the respondent (Kazeks), lived together, in a common law relationship, in a home at 150 King Street in Toronto from 1998 to 2005. The property originally belonged to Kazek’s mother, who then transferred title to herself and her son as joint tenants. Stothers moved in with Kazeks and his mother.

In December 2003, Kazeks’ mother moved out of the home and transferred her interest to her son. Kazeks then transferred his sole interest to himself and Ms. Stothers as tenants in common. However, their amicable co-ownership was short-lived, as their relationship ended in April 2005, and Stothers moved out of the house.

For the next 18 years, Kazeks continued to live in the home and paid all the expenses associated with the house.

Applying to sell after 18 years

In 2023, Stothers brought an application to sell the home because she learned that she had terminal cancer, with a prognosis of only a few months to live, and wanted to get her affairs in order. By the time of the application, Kazeks was 76 years old and had lived in the property for some 40 years.

There was no doubt that the wording of the Partition Act provided Stothers, as a tenant in common, with a prima facie right to the partition and sale of the home. Under section 3, any person with an interest in a property may bring an action or make an application for the partition or sale of that property under the directions of the court, “if such sale is considered by the court to be more advantageous to the parties interested.”

Nevertheless, the common law has recognized that courts have the discretion to refuse such relief in narrow circumstances. The onus is on the party resisting the sale to demonstrate why the court should deny the relief that the applicant seeks. In most cases, it is only where the court finds malice, vexatious intent, or oppression that the respondent will have met their burden to show that the application should be refused.

Demonstrating oppression

To demonstrate oppression, a respondent must show that they would suffer more than mere inconvenience and adverse financial consequences from the partition or sale. Some examples of oppression include sales that would require the relocation of a person with disabilities or a home business (like. Barker v. Barker, 2010 ONSC 408 and Mitchell v Leach, 2015 ONSC 6041).

As part of the analysis in determining whether a partition or sale would be oppressive, the courts use a contextual approach and consider the parties’ relationship, their reasonable expectations regarding the home, the nature of the conduct between them and the impact of a court-ordered sale.

Examining the relationship, expectations and intentions

The application judge first looked at the nature of the relationship between the parties. Kazeks and Stothers were in a personal romantic relationship at the time that title was apportioned between them, not a commercial one. The court noted that many situations end up being litigated because people fail to take a commercial approach to their romantic relationships and fail to consider what may happen if the relationship breaks down.

Next, the court considered the reasonable expectations of the parties when creating their respective interests in the property. Stothers was a tenant in common and held a statutory right to compel the sale of the home. However, she had moved out of the home 18 years earlier and had not once paid any of the expenses, or attempted to exercise her right since that time. Kazeks had paid all of the expenses to maintain the property and had not considered that he would suddenly be forced to sell his home many years later.

Furthermore, Kazeks’ evidence was that he had not intended to gift 50% of the home to Stothers and that he was not informed by the law firm that assisted in the transfer of title that the transfer would give her an ownership interest in the property.

What the evidence showed

There was plenty of evidence to show that the forced sale of the property would cause serious hardship to Kazeks not only financially, but also personally and emotionally:

He had osteoarthritis and had suffered from two heart attacks, an aneurysm, and a hip replacement and it would be difficult to relocate to another home.
His doctor, dentist, physiotherapist, and veterinarian were all within walking distance, and his friends and family who helped care for him were in the neighbourhood.
He used approximately 30 per cent of the home as his workspace for his electrician job and was unsure whether he would be able to continue working somewhere else.
He did not have a high income and was still working at the age of 76 just to make ends meet (his annual expenses exceeded his earnings by $18,000 a year).
The house had significant sentimental meaning to him.

As for Stothers’ circumstances, the application judge concluded that it did not appear that she needed the funds from the sale to provide for her immediate health and comfort.

A litigation twist

Stothers and Kazeks were also involved in a concurrent, ongoing, family law proceeding regarding whether Stothers held her interest in the property in trust for him and for related relief. In cases where a partition application is intertwined with other litigation, the courts generally exercise caution so as not to prejudice the rights asserted in the broader litigation.

Court’s ruling

The court concluded that ordering the sale of the home would cause serious hardship amounting to oppression for Kazeks and dismissed the application.

This decision illustrates the high threshold that must be established to defeat a Partition Act application. Fortunately for Kazeks, he was able to provide sufficient evidence of his personal circumstances to persuade the court that the order sought would be oppressive.

QUICK HITS

 

• In the case of 1000249084 Ontario Inc. v. Andazesgishahr, the Ontario Superior Court of Justice dealt with a property dispute involving co-owners and a mortgage lender; the co-owners had an agreement preventing the sale of the property without mutual consent. 
• When the property faced financial difficulties, one co-owner’s son’s company purchased the second mortgage to enforce it and sell the property. 
• The court ruled in favour of the son’s company, finding no bad faith or wrongdoing. 

When a property is purchased by co-owners for development and sale, they may set out their respective obligations in a written agreement that addresses the ongoing costs and the eventual sale of the property. If their relationship deteriorates or the property needs to be sold before they originally contemplated, they may have to determine how to deal with payment of the outstanding mortgages. Rights between co-owners of a property and their lenders are generally subject to the contracts they have made.

In 1000249084 Ontario Inc. v. Andazesgishahr, the Ontario Superior Court of Justice dealt with a dispute between one co-owner and a mortgage lender owned by the son of the other co-owner over the sale of a property.

The property was purchased by Payam and his friend and business partner, Mansour. They entered into a written co-tenancy and trust agreement under which they agreed that neither of them could compel a sale of the property without the other’s consent. They agreed to share liability under a first mortgage, with Payam taking on sole responsibility for any further mortgages. Payam was also responsible for payment of the realty taxes, home insurance, utilities and maintenance. Payam lived in the property with his wife and child.

Defaulted mortgages and disagreements

A second and third mortgage was registered on title for renovation purposes. By June 2022, all three mortgages were in default. Payam wanted to sell the property, but Mansour disagreed.

In July 2022, Mansour’s son incorporated a numbered company and paid $509,940.10 for an assignment of the second mortgage. The numbered company then sued Payam for judgment under the second mortgage and sought a court-ordered sale of the property.

In response, Payam took the position that the numbered company was actually controlled by his partner, Mansour and that the attempt to sell the property contravened their agreement. Payam argued that the plaintiff company and Mansour colluded for the purchase of the second mortgage in order to give Mansour unfair leverage in the dispute over the sale of the property. Payam claimed that the plaintiff mortgagee was exercising its rights in bad faith and for improper purposes. Since Mansour had refused to consent to the sale of the property, Payam argued that the plaintiff should not be allowed to recover additional interest and fees made payable under the second mortgage.

On a motion for summary judgment brought by the plaintiff mortgagee, the motion judge rejected Payam’s arguments. The evidence of Mansour’s son was that he took steps to incorporate the plaintiff and obtain an assignment of the second mortgage because this was a way to enforce the mortgage in an expedited and controlled manner at less cost than would be incurred by a financial institution. The motion judge agreed that this made good business sense.

Mortgagee’s perspective

As to the relationship between Mansour and the mortgagee, the motion judge noted that children often seek to help their parents, and the fact that they do so does not mean that they are acting improperly. There was no persuasive evidence to conclude that Mansour’s son was motivated by any intention to harm Payam that would contradict his professed intention to assist his father by ensuring that the costs of sale are minimized. 

Further, any act to deliberately and negatively affect the sale price would mostly harm his father rather than Payam since the majority of the equity belonged to Mansour.

Payam argued that Mansour had breached their agreement not to compel a sale of the property, but there was no such contract between Payam and the plaintiff mortgagee. The motion judge noted that it is trite law that a mortgagee acting in good faith and without fraud will not be restrained from a proper exercise of his power of sale except upon tender by the mortgagor of the principal money due with interest and costs. There is no duty on a mortgagee to allow a mortgagor to sell a property when a mortgage has gone into default.

The importance of good faith

The motion judge also considered Payam’s argument that Mansour had deliberately attempted to harm him by refusing to consent to his efforts to sell the property. Payam’s position was that Mansour had failed to act reasonably in the exercise of a discretion set out in their co-tenancy agreement, in violation of the duty of good faith required by the Supreme Court of Canada.

The court briefly reviewed the evidence about Payam’s proposals to sell the property and concluded that Mansour was not obligated to accept any of them. The court also noted that Payam admitted he had obtained the third mortgage without Mansour’s knowledge or consent, which understandably impacted whether Mansour wanted to have any further dealings with Payam.

In assessing whether Mansour had breached any duty to act in good faith, the motion judge concluded that Mansour was entitled to act in his own best interests and was not required to agree to something that could undermine them. While an earlier sale might have achieved a better sale price based on the subsequent market decline, there was no reason to conclude that Mansour and/or the plaintiff mortgagee knew that the market would decline and that it would continue to do so rather than going back up.

The motion judge, therefore, rejected Payam’s argument that there was a genuine issue as to a breach of the duty of honest contractual performance. The plaintiff did not conceal the relationship between Mansour and the son, nor was there any evidence that anyone had misled Payam as to amounts due and owing under the second mortgage. Mansour had the discretion to refuse to agree to sell the property, and in any event, this discretionary power did not arise out of the second mortgage, and there was no privity of contract between the plaintiff mortgagee and Payam.

Court’s ruling

In the result, the court granted judgment to the plaintiff mortgagee and ordered that it could take steps to sell the property. After the property was sold and the mortgages paid out, any remaining balance would be paid into court subject to determination of the remaining dispute between Payam and Mansour.

The decision shows that it will be difficult to establish bad faith or other improper conduct on the part of a co-owner or mortgagee who is acting pursuant to the terms of the written agreements between the parties. In Ontario, the Partition Act generally allows a co-owner to seek a court-ordered sale of a property, but in the case at hand, the parties had agreed that they could not do so without the other’s consent. As a result, there was no contractual breach by the co-owner refusing to agree to a sale, of which he was not in favour. For its part, the mortgagee was simply enforcing its rights to enforce the second mortgage.

QUICK HITS

• In a collapsing real estate market, buyers who fail to complete a purchase can face substantial liability exceeding their deposit; the case of Switzer v. Petrie arose from a failed real estate transaction in Ontario in July 2022.
• The buyers backed out due to “unforeseen circumstances,” prompting the sellers to resell the property at a lower price; they later sued for the price difference, totalling $212,302.11. 
• Ultimately, the court awarded damages to the sellers, highlighting the risks buyers face when breaching purchase agreements during market corrections. 

In collapsing real estate markets, buyers who fail to complete a purchase may face liability vastly exceeding any deposit they may have paid. In most cases, the seller will be able to seek damages based upon any difference between the unpaid purchase price and the amount realized upon a subsequent resale of the property. Ontario courts dealt with dozens of these types of claims arising from a market correction in 2017.

Given the market correction in Ontario that began in 2022 and continues at the time of writing, there will undoubtedly be dozens more cases arising from similar circumstances.

The Switzer v. Petrie case

The Ontario Superior Court of Justice decision in Switzer v. Petrie, arose out of a failed transaction in July 2022.

The defendant had entered into an Agreement of Purchase and Sale (APS) on May 14, 2022, for the purchase of the plaintiffs’ residential property for $810,000, with a scheduled completion date of Jul. 14, 2022.

On Jul. 4, 2022, the defendants advised that they would not be able to complete the transaction due to “unforeseen circumstances.” Among other things, they complained that they had not received a survey of the property and that they were concerned about the property’s sewage system. However, it appears that neither of these issues had been addressed in the APS as conditions that would entitle them to terminate the transaction.

Legal proceedings

The plaintiffs promptly re-listed the property for sale for $699,000 and eventually accepted an offer from another buyer for $600,000, which closed on Aug. 19, 2022. They sued the defendants for the difference and associated expenses, totalling $212,302.11.

The plaintiffs brought a motion for summary judgment of their claim, which is common in these types of proceedings.

In response, the defendants abandoned their complaints about the property and took the legal position that the subsequent sale price agreed to by the plaintiffs was a genuine issue requiring a trial. In particular, they took issue with whether the price reflected the fair market value of the property in August 2022, when it was resold.

Since there was no question that the buyers had breached the APS and were liable, the only live issue before the court was damages and the sellers’ potential failure to mitigate.

Neither party filed any appraisal evidence in support of their positions on the motion. Instead, the plaintiffs relied on the fact that they had sold the property to an arm’s length buyer, and there were no other offers made during the listing period.

The motion judge agreed with the sellers that the claim was amenable to summary judgment and did not require a full trial, referring to the general principle that where a purchaser fails to close a real estate transaction, and the vendor takes reasonable steps to sell the property in an arm’s length sale to a third party in mitigation of damages, the difference between the two sale prices will be used to calculate the damages. In such circumstances, there will generally be no need for expert evidence.

Proving fair market value

The defendants referred to some of the facts surrounding the sale in order to argue that there were issues as to whether it was improvident, in particular, the speed with which the property was resold for a much lower price. However, the motion judge was of the view that it was too late for the defendants to attend a summary judgment motion without submitting at least some evidence as to the value of the property to bring into question the arm’s length sale. They had no appraisal or other market value evidence and did not cross-examine the plaintiffs on the sale process.

In responding to the summary judgment motion, the defendants were obligated to put their best foot forward. Conversely, in the motion judge’s view, “the plaintiffs were entitled to rely on the arm’s length sale to a third party as prima facie establishing the fair market value of the property as of the date of resale. They were not required to adduce any expert evidence.”

The defendants also failed to establish any failure to mitigate on the plaintiffs’ part. Upon being advised by the defendants that they were not going to close the transaction, the plaintiffs re-listed the property with a real estate agent and accepted an arm’s length offer on the property. The price was not unreasonable.

Court decision and lessons learned

In the result, the motion judge concluded that the fair market value of the property at the time of its resale in August 2022 was $600,000, and there was no failure to properly mitigate. The plaintiff’s summary judgment motion was granted, and the court awarded damages of $212,302.11. The deposit of $15,000 was credited against the judgment. The plaintiffs will also be entitled to court costs in an amount to be determined.

The case is a fairly typical but cautionary tale for buyers who are facing a claim for damages following an aborted transaction. While circumstances may arise in which a buyer is financially unable to complete a purchase, in many situations, the consequences of failing to close may be significant. The party breaching the APS takes on the risk of being exposed to damages based on the prevailing market conditions. 

Disputes between neighbours over property boundaries and rights-of-way are often messy and fraught with charged emotions as each party asserts their respective claims. Such disputes may require the court to review title documents dating back many decades to determine when historical rights-of-way have been created or extinguished.

Background

Bender v. Dulovic involved a dispute between two neighbours in Ayr, Ontario, over the use of a driveway and the location of a water well.
The applicant owned her property since 2001, firstly with her father as joint tenants and then on her own after her father passed away in 2017.
The respondent obtained title to his property in September 2019. Prior to that time, the applicant’s father held title to the property before it was sold by his mortgagee to the respondent under power of sale.

Upon taking possession, the respondent began travelling over a driveway on the applicant’s property and drawing water from a well on her property. The applicant’s evidence was that the well was disconnected in July 2019, before the respondent acquired his property, and that he took steps to reconnect it without permission. The applicant also claimed that the respondent had disposed of garbage on her property, cut down trees, and otherwise interfered with her use of the property.

The applicant commenced proceedings seeking a declaration that the property owned by the respondent had no right-of-way, easement or any other right of travel over her property, including by use of the disputed driveway, and an order prohibiting the respondent from using the well.
The respondent disputed that the well was disconnected and argued that he had only ever performed regular maintenance thereof. He sought an order that the part of the applicant’s property that included the subject driveway and water well were actually part of his property. Alternatively, he argued that his property did have a right-of-way over the applicant’s property to use the driveway and well.

Property title traced back to the mid-1900s

The dispute was eventually adjudicated by the Ontario Superior Court of Justice in 2023. The parties filed expert reports regarding the boundaries and rights-of-way. Title to the properties was traced back to the mid-1900s. Predictably, the experts disagreed on the status and scope of historical easements affecting their clients’ properties.

The application judge first assessed whether the respondent owned the portion of the applicant’s property containing the driveway and water well.

The survey evidence showed that the driveway and well were situated on the applicant’s land. There was no substantive evidence produced by the respondent in any expert reports or surveys that established that the boundary lines were improperly located or moved by any of the surveyors. The dispute before the court was not an application made under the Ontario Boundaries Act, which would have been the most appropriate forum to obtain a ruling confirming the true location on the ground of the boundaries of the properties. The court was not prepared to make findings that were contrary to the survey evidence.

One of the issues was that the respondent was claiming title to portions of the land on the applicant’s property that were shown as rights-of-way when the properties were owned by different people. However, the rights-of-way had merged to form part of the whole of the applicant’s property when predecessors in title became the common owners of the lands. As a result, the application judge determined that the driveway and well were located within the boundaries of the applicant’s property, and the respondent did not own the lands on which they were located.

“Simply put, one cannot hold an easement over their own property.”

Notwithstanding that he did not own the land on which the rights-of-way were located, the respondent claimed a right to use them by way of prescriptive easement. As the two properties had been converted into the Land Titles system in 2003, the respondent needed to prove that a presciptive easement had been established for 20 years by that time.
However, since the applicant’s father was the owner of both properties before the respondent acquired his property in 2019, the court determined that any prescriptive easements that may have existed had been extinguished by operation of law. Simply put, one cannot hold an easement over their own property.

The court noted that the outcome may have been different if it was the respondent’s property that had been jointly owned by the applicant and her father since, in that situation, extinguishment of the easement on the basis of one of the joint owners also being the owner of the land subject to the easement would be to deny the other co-owner their right to the easement they were jointly granted. The outcome may also have been different if the applicant and her father had owned her property as tenants in common. However, neither of these circumstances were present in the matter at hand. The respondent’s claim for a prescriptive easement therefore failed.

Lastly, the respondent argued that he should have an implied “easement of necessity” on the basis that his property was inaccessible except by passing over the driveway on the applicant’s land. The concept of an implied easement of necessity arises from the premise that the easement is “an implied grant allowing the purchaser to access the purchased lot.”
The existence of such an easement, however, is based on whether it is necessary to use or access the property. If access without it is merely inconvenient, the easement will not be implied.

The respondent argued that he could not access his property from another location because the grade of the road was not the same as the grade of his property, and there would be safety and regulatory concerns in adding an access point. The application judge was not satisfied that the respondent had proven either that the claimed easement of the driveway was necessary or that he could not dig another well on his own property.

Outcome

As a result, the claim for an implied easement of necessity was dismissed.
In the result, the applicant established her legal rights to quiet enjoyment of the entirety of her property as outlined by the boundaries described in a survey she obtained in 2020. The court, however, provided the respondent with a limited period of time to use the driveway and the well while he made alternative arrangements.

The court declined to make any adverse findings of harassment or other improper conduct on the respondent’s part since the evidence was that he reasonably believed he had title to or an interest in those lands that entitled him to act the way he did. For the same reasons, the court declined to order any damages for trespass, nuisance, or loss of enjoyment of the applicant’s property.

The application judge concluded by stating that it was the court’s expectation that the respondent would respect the applicant’s ownership rights and not interfere with her property. It will be up to the neighbouring property owners to try and resolve any further issues amicably without police or judicial intervention.