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 Ali v. Patel, the Ontario Superior Court ruled that no binding agreement of purchase and sale was formed because the seller’s inclusion of Schedule B, which was not signed by the buyer, constituted a counteroffer rather than acceptance of the buyer’s offer.
• The court emphasized that a binding contract requires a “meeting of the minds” on all essential terms, which was absent in this case as the buyer neither signed nor agreed to the amended terms.
• Consequently, the buyer was not liable for the $50,000 deposit, illustrating the importance of ensuring all terms are finalized and agreed upon before declaring an agreement binding.

In Ali v. Patel, 2024 ONSC 3505 (CanLII), the Ontario Superior Court of Justice determined that a binding agreement of purchase and sale had not been formed between a seller and buyer because the seller had added a schedule which had not been signed by the buyer.’

The buyer’s unconditional offer

On Jun. 5, 2023, the buyer made an unconditional offer to purchase the seller’s property, which was irrevocable until 11:59 pm on the following day. The offer to purchase contained an offer summary document, an offer of purchase and sale, and a Schedule A. 

On the evening of Jun. 6, 2023, the seller’s agent sent the signed offer back by email. The price, deposit, closing date and Schedule A remained unchanged. However, the seller added a notation on the first page of the agreement indicating that it now included a Schedule B. The cover email stated: “Can you have your clients initial Schedule B and on the first page that there is a Schedule B?  Accepted offer and deposit info attached.” There was no new irrevocable date proposed. 

The form of the Schedule B document included provisions dealing with issues such as defined “banking days” and how the parties would conclude the transaction in the event that banks and registry offices were closed on the anticipated closing date, the timing and form of deposit and where the keys would be left. The MLS listing for the property included a stipulation that all offers were required to include Schedule B.

Schedule B was not attached to the agent’s initial email enclosing the signed offer. A few minutes later, however, the agent re-sent the documents, this time attaching Schedule B, under cover of an email stating “Sorry. Use this.” The buyer did not respond or deliver the $50,000 deposit required by the agreement.

The controversy over Schedule B

The next morning, on Jun. 7, 2023, the buyer advised that they would be unable to proceed with the transaction for unforeseen family reasons. The buyer sent the seller a mutual release later that day. The seller did not sign the release. Rather, the seller’s agent sent an email advising that her clients would hold the buyer liable for any loss or damages.

The seller re-listed the property. One week later the seller sold the property for $25,000 less than the previous buyer had agreed to pay.

Litigation ensued and the seller ultimately brought a motion for summary judgment concerning the buyer’s liability for the $50,000 deposit. The seller argued that there was a binding agreement and that they were entitled to the $50,000 deposit that should have been paid by the buyer.

A “counteroffer” is a non-acceptance of a previous offer

The motion turned on the issue of whether the addition of Schedule B in the final version of the agreement and the demand from the seller that the buyer acknowledge the Schedule by signatures and initials, was a counteroffer that needed to be accepted by the buyer to form a binding agreement.

The court referred to the principle that—by definition—a “counteroffer” is a non-acceptance of a previous offer. In order for a binding agreement to be formed, there must be a meeting of the minds. The court may look beyond the formal written document, to the words and conduct of the parties, if all the essential terms have been agreed upon.

First, the seller argued that there was a binding agreement in place because Schedule B did not include essential elements of the contract.

The motion judge noted that the circumstances were unusual because Schedule B did not address what would typically be considered necessary and essential clauses to find that there had been a meeting of the minds and the conclusion of a binding agreement. 

“Their return of the agreement including Schedule B was therefore a ‘counteroffer’ which the buyer was free to accept—or not.”

However, the treatment of Schedule B by the seller as a necessary inclusion in any final agreement indicated that it was essential in their view. Their return of the agreement including Schedule B was therefore a “counteroffer” which the buyer was free to accept—or not.

Second, the seller argued that they had accepted the buyer’s offer without attaching Schedule B, so a binding agreement was struck, and their later communication which included Schedule B came after a contract already existed. This argument was rejected since the failure to include Schedule B in the agent’s first email was obviously inadvertent, as is evident in the wording of the follow-up email stating “Sorry. Use this”.

Counteroffer or binding agreement?

The motion judge commented that the argument might be more persuasive if the facts were that the seller had fully accepted the offer and then later changed their mind to decide that they wanted to include a new Schedule or additional provisions to the deal. 

The argument then would be that, in fact, there was no counteroffer and a binding offer was in place, and any events thereafter could not impact the already existing contract. However, that is not what occurred.

Rather, the signed counteroffer was inadvertently sent without Schedule B. The email referenced Schedule B and asked that the buyer initial the first page of the offer document and sign Schedule B. 

In the motion judge’s view, giving effect to the seller’s argument would have ignored the fundamental contractual law principle that a contract requires a meeting of the minds to be formed. Here, there was no meeting of the minds as the buyer did not sign or accept any agreement that included a Schedule B.

No binding agreement, no deposit liability

In the result, the court found on a balance of probabilities, that the returned agreement was a counteroffer, and that the seller viewed Schedule B as a necessary component of a concluded agreement. As the counteroffer was never accepted or signed by the buyer, no binding agreement was reached. The buyer was therefore not liable to pay the deposit.

The decision demonstrates that a party should be cognizant that changing or adding any terms to an offer may constitute a counteroffer that requires acceptance. Schedules or other additional terms should be included in the original form of the offer that is intended to be accepted without further negotiation. 

Cases arising from failed residential real estate transactions in a falling market reaffirm that buyers who breach purchase agreements may face significant financial repercussions. 

Often, buyers argue that sellers have failed to mitigate losses by not re-listing the property or securing another buyer at the same price. However, this argument, as seen in Singh and Kaur v. Feneich, must be backed by evidence and cannot be based on speculation.

In this case, the plaintiff sellers agreed to sell their property for $1.25-million with a closing date in early August 2022. Despite several extensions, the defendant buyer was unable to secure financing and the transaction failed to close. 

The sellers re-listed the property in 2022 and accepted a significantly lower offer of $965,000. They sued for damages and brought a motion for summary judgment in the Ontario Superior Court of Justice based on the well-established principles for motions in similar cases.

Mitigation efforts and legal obligations

The defendant conceded to breaching the Agreement of Purchase and Sale (APS) and acknowledged liability for damages but disputed the sellers’ calculations for the damages sought. 

The defendant challenged both the sellers’ conduct in failing to consider another offer to purchase made by the defendant after the breach of the APS in August 2022, and the date to be used for calculation of the damages. In that regard, the defendant’s evidence was that she had made a further offer to purchase in January 2023, with a proposed closing date of February 2023 that ought to be used for the calculation of damages.

The court noted that sellers are required to take reasonable—not exhaustive—steps to mitigate losses.

The sellers presented evidence that they relied on professional advice from their real estate broker and accepted a reasonable offer given the market conditions. They also faced the unexpected burden and challenge of carrying two properties and accepted a reasonable offer.

The defendant did not file any independent, objective evidence in support of her position that the sellers failed to mitigate their damages in the form of evidence from a real estate broker as to reasonable listing prices for the property during the re-listing period or as to the nature of the real estate market in late 2022 and early 2023. 

The defendant’s attempt to characterize the sellers’ conduct as unreasonable in the market conditions was rejected as being pure speculation.

Closing date and calculation of damages

As to the date and calculation of damages, the motion judge relied on the propositions for the assessment of damages for breach of an APS:

• The court is to consider context, including “the plaintiff’s duty to take reasonable steps to avoid (their) loss”;
• The nature of the property and the type of market in which the plaintiff is required to re-list and sell the property are both relevant;
• Specific considerations apply in a falling market; and
• A plaintiff who retains the property solely for the purpose of speculation will be entitled to damages assessed as of the original (i.e., failed) closing date.

Taking into account these propositions, the motion judge found that the sellers acted reasonably in their efforts to mitigate their losses, including keeping their property on the market when two deals fell through between August 2022 and March 2023.

Lastly, the court found no evidence to support a finding that the defendant was financially in a position to purchase the property in February 2023, had the sellers accepted her January 2023 offer.

The importance of market context

The court assessed damages at $366,513, which included:

• A $287,500 price difference between the original and resale values.
• $31,906 in carrying costs, such as utilities, taxes, and mortgage interest.
• $47,107 in interest related to financing the sellers’ new build home.

Legal obligations of both purchasers and sellers

The decision underscores the importance of securing reliable financing and understanding the legal obligations of both purchasers and sellers before making a firm and binding commitment to a real estate purchase. 

Prospective buyers of a property must appreciate that they need to be fully prepared to close a transaction on the agreed-upon date, failing which they may not only lose the deposit but be faced with a claim for significant damages based upon the current market value of the property. 

In a rising market, the seller may be able to obtain a higher price but in a falling market, the price difference may result in damages well in the hundreds of thousands. The seller may also claim additional carrying costs and expenses for maintaining the property which are recoverable as part of the damages.

Written by James R.G. Cook and Delila Bikic

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.

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.

QUICK HITS

• Property owner (Kranenburg) overburdened shared laneway by increasing traffic; ruling limits use of laneway to reduce disruption to neighbours (Grices).
• Court sided with Grices, stating laneway’s use must revert to original purpose of serving a summer camp, limiting further development.
• Case highlights importance of proactive communication — judge suggested conflict could have been avoided if both parties had discussed changes before acting.

A shared laneway between two neighbours in Ontario became the focus of a legal dispute over its use. In the case Kranenburg v. Grice, the owners of two properties on Ontario’s Saugeen River disagreed on how the laneway should be used after one owner, Kranenburg, expanded his property’s operations from a summer camp to a busy trailer park and event space.

Neighbour’s response to increased use of access route

The laneway in question runs through the Grices’ property and provides the only access to Kranenburg’s land, which is otherwise landlocked. Historically, Kranenburg’s property had been used as a youth summer camp, with buses, service trucks, and a small number of seasonal trailers using the laneway. However, after purchasing the property in 2009 and running it as a camp for years, Kranenburg shifted its use in 2020, turning it into a busy trailer park and event space. This change significantly increased traffic on the laneway, with more vehicles coming and going, particularly on weekends.

The Grices, who have owned their agricultural property for generations, raised concerns over the increased traffic, which they claimed interfered with their farm operations and created safety risks. In response, they installed two gates along the laneway — one at the entrance and another near Kranenburg’s property — to control access. They also planted trees along the side of the laneway, which Kranenburg argued further restricted access to his land.

Lawsuit filed for damages from nuisance caused by gates and trees

In light of this, Kranenburg filed a lawsuit, claiming that the gates and trees were a nuisance and asking for damages.

The Grices defended their actions, arguing that the gates were necessary to manage the increased traffic and protect their farming operations. They pointed out that the gates were not locked, and access to the laneway was not fully blocked. They also claimed that Kranenburg had overburdened the laneway by using it for purposes beyond what had originally been intended, specifically citing the heavy traffic from the trailer park and event space.

In response, the Grices sought an injunction to restrict the use change and receive damages for trees Kranenburg had cut down for firewood.

Right-of-way use can evolve within reason, road deemed appropriate for historical low-impact use

In cases involving rights-of-way, courts must determine whether the land has been “overburdened,” meaning that the use of the easement has exceeded what was originally granted. In this case, the parties could not locate the original legal document establishing the laneway’s right-of-way, but they agreed that it had existed before 1994.

The court noted that when no specific restrictions are outlined in the original agreement, it’s generally assumed that the right-of-way use can evolve over time, provided the changes remain within reasonable limits.

After reviewing the evidence, the court found that the laneway’s historical use had been relatively low-impact. It had been used primarily for buses transporting campers, food delivery and garbage trucks, up to 20 seasonal trailers and occasional passenger vehicles. This level of traffic was in line with the laneway’s design as a narrow, single-lane gravel road.

Laneway overburdened, safety concerns deemed legitimate — injunction issued for Kranenburg’s use

However, the court agreed with the Grices that Kranenburg’s recent changes had overburdened the laneway. The increased number of vehicles, particularly on weekends, with trailers and passenger cars coming and going for events, significantly exceeded the historical usage of the road.

The narrow and winding nature of the laneway meant that two large vehicles could not pass each other easily, creating safety concerns. The increased traffic also disrupted the Grices’ enjoyment of their property, as the laneway was visible and the noise from frequent traffic was audible from their home.

As a result, the judge ruled in favour of the Grices and issued an injunction limiting Kranenburg’s use of the laneway. Going forward, the laneway could only be used for buses carrying campers and conference attendees, up to 20 seasonal trailers and service vehicles such as food and garbage trucks. The court also allowed for passenger vehicles used by Kranenburg, his staff and residents.

Kranenburg’s nuisance claim dismissed

Kranenburg’s claim that the gates were a nuisance was dismissed. The court found that the gates did not constitute a “substantial interference” with his property rights, as they did not prevent access to the laneway.

The judge acknowledged that the gates may have been an inconvenience but stated that this was an expected reality (not a “substantial interference”) when sharing a roadway between properties with different uses. The installation of the gates was deemed reasonable, given the increased traffic and the Grices’ concerns for safety.

As for the trees, the court found no evidence that they had significantly impeded access to the laneway or created a nuisance. The judge did, however, advise Kranenburg to communicate with the Grices before cutting down any trees in the future and recommended that a survey and advice from an arborist be obtained if further maintenance was required.

This case highlights the importance of clear communication between neighbours when it comes to shared property access. The judge noted that many of the issues could have been avoided if the two parties had discussed their concerns and plans in advance. Kranenburg’s decision to change the use of his property without consulting the Grices, and the Grices’ installation of gates without discussing them with Kranenburg, ultimately escalated the conflict.

In closing, the judge encouraged both parties to reset their relationship and find a way to peacefully coexist as neighbours moving forward.

QUICK HITS

 

• Anticipatory breach risk: Buyers requesting changes to a purchase agreement, such as a reduced price, may be seen as committing an “anticipatory breach,” allowing sellers to back out and even sue for damages.
• Court sides with sellers: A buyer’s demand for a $355,000 price reduction was viewed as an unwillingness to complete the deal, leading the court to rule in favour of the sellers, who remained committed to the original agreement.
• Financial consequences: The buyer was held liable for $345,121.98 in damages after failing to close the deal, illustrating the importance of framing renegotiation requests carefully to avoid breaching contracts.

When purchasing a property, buyers sometimes realize they might not be able to meet the agreed-upon terms, such as the completion date. In such cases, they may seek to extend the deadline, reduce the purchase price or make other changes to the agreement. However, buyers must be careful, as making certain demands could be seen as an “anticipatory breach,” which may allow the sellers to back out of the deal and even sue for damages.

The case of Zoleta v. Singh and Re/Max Twin City Realty illustrates this point clearly. In February 2022, a buyer agreed to purchase a home in Kitchener, Ontario, for $1,150,000, with a completion date set for June 30, 2022, and payment of a $50,000 deposit.  The Agreement of Purchase and Sale (APS) didn’t include any conditions.

Buyer requests reduced purchase price; sellers relist home for sale

Just a week before the completion date, the buyer’s lawyer informed the seller’s lawyer that the property had been appraised for $355,000 less than the agreed price and that the buyer “required” this amount to be reduced from the purchase price. The sellers refused this demand and their lawyer warned that failing to complete the purchase would breach the agreement.

Concerned about the buyer’s ability to finalize the deal, especially since they needed the sale proceeds to fund their own property purchase, the sellers relisted the home for sale. To be transparent, they informed the buyer’s real estate agent of this via text message. The buyer’s agent didn’t respond.

Nonetheless, the sellers didn’t enter into any new sale agreements before June 30, and they still showed up at their lawyer’s office on June 30, ready to close the sale if the buyer proceeded.

Buyer claims APS null and void, walks away

On the completion date, the sellers agreed to an extension if the buyer made a further non-refundable deposit of $50,000. Instead, the buyer claimed that the APS was void because the sellers had relisted the property, and he refused to finalize the purchase.

The sellers ended up reselling the property for $350,000 less than the buyer had agreed to pay (market conditions had changed). They sued the buyer for damages and moved for summary judgment.

Court rules in favour of sellers as they remained committed to completing sale

The buyer’s defense was that the sellers had “sabotaged” the transaction and his ability to get financing due to the relisting of the property before his completion date. The sellers argued that the buyer had committed anticipatory breach of the APS by demanding a $350,000 abatement.

The court ruled in favour of the sellers, stating that the buyer’s demand (by using the word “require”) for a $355,000 reduction was a clear sign they were unwilling to complete the purchase unless the price was lowered — it was not seen as a request.

The court found that the sellers remained committed to the original agreement and had not breached the contract: They gave notice to the buyer about wanting to close on the completion date but relisting the property for sale in the event that he wouldn’t close. They also agreed to an extension on terms that were not accepted.

Only once those negotiations failed, the buyer took the position that relisting the property made the APS null and void. The judge found that the sellers remained committed to completing the sale to the buyer as scheduled.

As a result, the buyer was held liable for damages, including the difference in the resale price of the property. The sellers sought damages of $345,121.98, which includes the carrying cost of the property ($9,962), costs they incurred to extend their scheduled purchase transaction ($4,934.98) and loss of sale value, net of real estate commission ($330,225).

This case serves as a warning: if your client needs to renegotiate the terms of their deal, the request can’t come across as a non-negotiable demand. Otherwise, they risk being seen as breaking the contract and facing significant financial consequences.

QUICK HITS

• In 2016, water pooling along a property line, traced back to a neighbour’s sump pump, contained harmful bacteria like E. coli. The neighbour failed to fix it due to financial constraints and lack of insurance.
• The Ontario Superior Court of Justice case highlighted the severe consequences of neglecting property maintenance, with the plaintiff’s home collapsing due to pooling water, leading to a significant legal battle.
• The neighbour was found liable for strict liability, negligence and nuisance, resulting in the plaintiff being awarded $487,211 for home replacement costs, $18,143.53 for additional expenses, $35,577.99 in pre-judgment interest and $100,000 in legal costs.

Neighbours owe each other a duty of care to avoid causing property damage, yet common sources of damage include water flooding from sump pumps, septic systems or poorly maintained eavestroughs.

The Ontario Superior Court of Justice case Warren v. Gluppe highlights the significant consequences of failing to uphold this duty.

Contaminated water encroaching on property

In 2016 in Prince Edward County, Ontario, the plaintiff noticed water pooling along the property line, traced back to his neighbour’s sump pump. The water contained harmful bacteria like E. coli. Despite acknowledging the issue, the neighbour did not fix it, claiming financial constraints and lack of insurance.

The municipality ordered the neighbour to redirect the sump pump water away from the plaintiff’s property, but the solution failed. By the end of 2016, the pooling water caused the plaintiff’s home to collapse, making it uninhabitable.

The plaintiff sued the neighbour in December 2016. The trial took place in 2023. An engineer testified that the neighbour’s failed attempts to reroute the sump pump water caused the house to collapse. The neighbour’s septic system also violated the Ontario Building Code, contributing to the problem. As well, the plaintiff showed that the neighbour failed to properly maintain his eavestroughs, resulting in further water saturation on this property and putting the property’s foundation at risk.

Neighbour liable for several reasons

The court found the neighbour liable for three reasons:

1. Strict liability (Rylands v. Fletcher): The neighbour’s sump pump and septic system were considered non-natural uses of the land (discharge of water from the basement through faulty pipes along the property), and their failure caused damage, which had nothing to do with “the laws of nature.”

2. Negligence (Alfarano v. Regina): The neighbour did not adequately reroute the sump pump water, maintain the septic system or repair the eavestroughs, all of which posed foreseeable risks to the plaintiff’s property.

3. Nuisance (Antrim Truck Centre Ltd. v. Ontario): The neighbour’s actions substantially and unreasonably interfered with the plaintiff’s use and enjoyment of his property, leading to its collapse and contamination.

The decision

The plaintiff was awarded $487,211 for the replacement cost of his home, $18,143.53 for maintenance, repair, travel and accommodation costs, $35,577.99 in pre-judgment interest and $100,000 in legal costs.

A long-running dispute between neighbours over a strip of land just 21.9 centimetres wide ended in court after years of litigation and 10 affidavits.

In Margaritis v. Milne, the Ontario Superior Court of Justice ruled on whether the doctrine of adverse possession applied, ultimately granting the land to one neighbour based on lasting improvements made under the belief it was their property.

Negotiations fail over small property encroachment

Milne bought his property in 1996, while Margaritis inherited his in 2017. A wooden fence and stone retaining wall marked the boundary between their properties. After his purchase, Milne made extensive changes, including building a new fence and retaining wall.

When Margaritis planned to redesign his backyard, a survey revealed a small encroachment from Milne’s property. Negotiations failed, leading to the lawsuit.

Cannot claim adverse possession

Milne claimed the land through adverse possession, which requires 10 years of exclusive use. However, Margaritis argued that Milne had moved the fence line to its current location in 1996, while Milne maintained that he re-built the fence on the pre-existing fence line.

It was found that both properties were converted to Ontario’s Land Titles system in 2002, and registered land in the system can’t be obtained by adverse possession unless that 10-year period took place prior to registration. Milne’s use didn’t meet the 10-year requirement before this time.

The court couldn’t confirm where the boundary was before the 1996 renovations, as Milne was unable to provide surveys, plans, permits or engineering drawings showing the work done. So, his claim to title under adverse possession was denied.

Milne obtains land because of honest belief it was his

Despite rejecting the adverse possession claim, the court awarded Milne the land because he made lasting improvements, like the retaining wall and stairs, believing it was his. This decision was supported by section 37 of the Ontario Conveyancing and Law of Property Act, which allows a person to retain land if they made improvements under an honest belief it was theirs.

The court found Milne’s belief genuine and the improvements lasting and substantial. Changing the boundary now would require significant modifications to Milne’s property, plus the boundary existed for more than 20 years without complaint. As well, granting the disputed area to Margaritis would require significant renovations to Milne’s backyard to add an “objectively insignificant area” to Margaritis’ property — no compelling reason arose as to why Margaritis required the strip of land.

So, Milne was granted the land but had to compensate Margaritis for its value. The exact compensation method is yet to be determined. An appeal was dismissed, as the Divisional Court upheld the original decision, agreeing that the improvements were lasting and that the judge had exercised appropriate discretion.

Co-authored by Christina Tassopoulos

QUICK HITS

 

• The judge extended a homeowner’s time to appeal an Order to Comply because it was based on a misunderstanding by the owner and the municipality of the property’s legal use.
• Three complaints were issued from 2013 to 2021 about the building’s construction without a permit, an increase in the number of dwelling units and a zoning bylaw contravention for which an Order to Comply was issued. The homeowner eventually appealed this decision.
• The court rescinded the Order to Comply and required the homeowner to only use his property for three dwelling units.

Municipalities have zoning bylaws that regulate the number of separate residential units allowed in a property, and violation of these bylaws can result in orders to comply — often meaning expensive renovation expenses among other penalties.

In Vitale v. Toronto (City of), the Ontario Superior Court of Justice extended a homeowner’s time to appeal an Order to Comply because when it was issued, it was based on a misunderstanding by the owner and the municipality of the property’s legal use.

The property and its zoning

The property was a three-storey building constructed in about 1927. In 1963, it was zoned by the City of Toronto as a single-family dwelling. Sometime between 1927 and 2011, the property had been converted from a single-family dwelling to a five-unit residential multiplex.

In 2011, the applicant (Vitale) purchased the property. It had multiple entrances and five separate dwelling units at this point. Vitale moved into one unit and rented out the other four.

Before the purchase, Vitale hired a conveyancing lawyer to inquire about whether a three-family dwelling was legal (it’s not clear why the conveyancing lawyer inquired about a three-unit dwelling as opposed to five, but it could have been because only three units were occupied at the time).

The City confirmed that at the time it was built in 1927, there were no zoning by-laws in effect, but at present, the property was zoned for a single-family dwelling and there were no records confirming the dwelling had three apartment units.

Vitale was told to satisfy himself as to whether the uses complied with the zoning bylaw and the Ontario Building Code.

Repeated complaints

In 2013, Vitale began constructing a deck in the backyard. The City received a complaint that this was happening without a permit, so they issued an Order to Comply which required Vitale to obtain a permit. Vitale submitted an application, which falsely described the property as a detached single-family dwelling and included a site plan describing the same. The City issued a permit.

In 2017, the City received a complaint that there was an increase in the number of dwelling units in the property. An inspector attended and Vitale explained he’d recently engaged an architect to design and construct a new single-family dwelling at the property and planned to submit the permit application within four to six months. Nothing significant occurred for several years.

In 2021, the City received another complaint. This one was from a tenant in the upstairs unit, indicating that the property was being used as a five-unit multiplex and contravened zoning and the Ontario Building Code. The City inspected and concluded that the property had originally been a single-family dwelling but had been altered to be a multiplex with five apartment units.

On June 7, 2021, the City issued an Order to Comply with the Building Code Act requiring Vitale to “revert” the use of the building into a three-unit dwelling. But, as far as Vitale was aware, the building had never been used as a three-unit dwelling.

Eventual appeal

Although Vitale engaged in discussions with the City, he did not appeal the Order to Comply. The City delivered a demand letter in February 2022 and, again, Vitale did not appeal it. In May 2022, he was served with a summons to appear before the Ontario Court of Justice.

In September of that year, Vitale applied to the Superior Court of Justice for an appeal of the Order to Comply (beyond the deadline for doing so).

Under section 25(2) of the Building Code Act, a judge may extend the time for appealing if they’re satisfied there are reasonable grounds for the appeal and for applying for the extension, which typically requires a reasonable explanation for the delay.

Main issue: Number of units converted before and after 1963 bylaw is unknown

The application judge felt the main issue was it was unknown how many units were converted before the enactment of the zoning bylaw in 1963, and how many were converted after that.

Any use that was established before 1963 and continued uninterrupted afterward could be considered a “legal non-conforming use” — meaning it could continue despite the enactment of the zoning bylaw.

To prove a legal non-conforming use, a party must prove that 1) the use of the land, building or structure was lawful at the time of the enactment of the zoning restriction (in this case 1963), and 2) the use continued after that. On the other hand, any converted use that happened after 1963 besides as a single-family dwelling would have contravened the zoning bylaw.

The City’s Order to Comply required that Vitale submit plans and obtain the necessary permits to change the occupancy of the building from three dwelling units to five dwelling units, or to revert the building to its legal use.

The judge commented that neither side seemed to understand that the only thing Vitale needed to do to comply with the Order was to decrease the total tenancy by one unit since only three units were being rented out (aside from his own family’s residence). Vitale needed to terminate one of the existing tenancies or vacate his unit to revert to the last legal use as a three-unit multiplex.

Vitale treated ‘fairly and reasonably’ as City could have sued for bylaw contravention

The City had tried unsuccessfully for over a decade to determine whether Vitale had created a legal non-conforming use. After it issued the Order to Comply, Vitale tried to appeal as he firmly believed his plan to restore the property to a single-family dwelling should have been reasonable, arguing that the Order to Comply was an example of a bureaucracy gone amok and was a “Kafkaesque impossibility” since the City wanted him to revert a building to something that never existed.

Vitale argued that the City had no evidence on which to make its Order to Comply and that it ought to be rescinded.

The judge determined that the City had treated Vitale very fairly and reasonably since they could have sued Vitale for contravening the bylaw, which would have placed the onus on him to prove that the property had been converted before the 1963 bylaw enactment.

Prosecuted for a crime not committed

The flaw in the City’s case was that they issued an Order to Comply under section 10(1) of the Building Code Act, stating in part, “[e]ven though no construction is proposed, no person shall change the use of a building”. It seemed the City assumed that Vitale had purchased the property as a three-family dwelling, that this was a legal non-conforming use and that he’d changed the property to a five-unit dwelling without a building permit.

However, evidence showed that Vitale did not change the use of the property. When he purchased it in 2011, it was already a five-unit dwelling. Then, when the Order to Comply was issued, there were only four units being occupied, and a reversion to a three-unit dwelling, which the City believed to be the last legal non-conforming use, could have been achieved without any renovations at all but by vacating his own unit or terminating one of the tenancies. So, Vitale was being prosecuted for an offense he hadn’t committed.

The court’s decision — an ‘ironic result’

The application judge noted that the Building Code Act was legislation for public health and welfare and was to be interpreted broadly and liberally. Here, the court decided to rescind the City’s Order to Comply and require that Vitale only use his property for three dwelling units.

The application judge noted that the ironic result was that had Vitale complied with the Order to Comply in the first place he not only would have avoided prosecution and the appeal, but it would not have interfered with his ultimate plans to demolish the multiplex and to build a single-family home, which was permitted.