Takeaways from recent appellate real estate decisions

Skyline Real Estate Acquisitions (III) Inc. v. Peterborough Retail Portfolio LP, 2023 ONCA 23

This dispute is about the duty of the parties in a real estate transaction to act in good faith.

Skyline Real Estate Acquisitions entered into an agreement with Peterborough Retail Portfolio to purchase two shopping plazas in Peterborough, ON for $70 million.

Skyline refused to close the sale, alleging the seller failed to satisfy tenancies conditions involving two key tenants (Walmart and Dollarama). The agreement had required the seller to provide estoppel certificates from tenants on or before the closing date and to provide an extension of Dollarama’s lease.

Skyline sought the return of its $3.25 million deposit.

The application judge decided to dismiss the application. Skyline repudiated the contract and the seller was entitled to keep the deposit.

When the case was heard in the court of appeal, the judge dismissed the appeal and ruled that the application judge did not err in determining whether the purchase and sale conditions were properly satisfied. The judge ruled that the Walmart estoppel certificate and Dollarama extension were delivered to Skyline by the seller who “more than met its obligations to make reasonable efforts relative to the agreement of purchase and sale (APS) and transaction”.

The key takeaway from this decision is that parties to a commercial agreement cannot make up allegations of breach of conditions based on pure technicalities that have no impact on the right that the condition is designed to protect.

Akelius Canada Ltd. v. 2436196 Ontario Inc., 2022 ONCA 259

This dispute is about a buyer’s claim for increased value in a failed sale.

Akelius (the buyer) and 243 Ontario (the seller) signed an agreement of purchase and sale (APS) for seven residential apartment buildings in Toronto for $230 million.

Akelius paid $19 million in deposits, but seller refused to remove $49 million of encumbrances from title to the property.

The transaction failed and deposits were returned. The seller sold the property to a new buyer.

Akelius sued the seller for costs of $775,000 and a difference of $56.5 million in the purchase price thrown away due to the breach of contract.

The motion judge decided to allow the buyer’s claim for costs thrown away but dismissed Akelius’ claim for the capital appreciation of the property. The buyer was not entitled to damages based on its lost opportunity to cash in on the local real estate boom.

The appellate judge ruled that the buyer failed to establish that it suffered a loss as of the date of breach. They did not provide evidence that they could not re-enter the market to buy an alternative property on the date of the breach to support a later date.

The key takeaway from this decision is that the presumptive date when damages are assessed in a breach of a real estate contract is the date of the breach, not a later date. 

10443204 Canada Inc. v. 2701835 Ontario Inc., 2022 ONCA 745

This dispute is about fraudulent misrepresentation in the purchase of a business.

The parties signed an APS for a Brampton, ON coin laundry for $290,000. The buyers paid a deposit with the balance due on closing. Before closing, the parties amended the terms: $100,000 on closing; $190,000 paid after closing by monthly payments (with interest) over 4-years (vendor take-back mortgage).

In negotiations, the seller claimed the laundry generated $12,000/month in revenue. The APS agreement included an entire agreement clause and terms that allowed the buyers the right to attend the business to verify income and to terminate within 15 days.

After closing, the buyers defaulted in payment of the vendor take-back mortgage.

The motion judge decided that the buyer’s claim of fraudulent misrepresentation did not raise a genuine issue for trial and that they were liable for the full balance owing.

The appellate judge allowed an appeal and ordered that the matter proceed to trial. The judge ruled that the motion judge erred in treating the entire agreement clause as diminishing or precluding the buyer’s ability to rely on the defence of fraudulent misrepresentation. The motion judge’s finding that there was no genuine issue of fraudulent misrepresentation that required a trial was rejected.

The key takeaway from this decision is that fraudulent misrepresentation can afford a defence against a claim on a contract: an agreement entered into through fraudulent misrepresentation may be rescinded by the innocent party.

Rosehaven Homes Limited v. Aluko, 2022 ONCA 817

This dispute is about the failure to close on the purchase of a new home.

Buyers signed an APS with Rosehaven (the builder) for a $1.5 million new home. Rosehaven would not accept any condition of financing. The buyers paid an initial deposit of $20,000 (plus upgrades) and additional deposits totalling $70,000.

The closing date was November 2018, but the buyers sought two extensions to December 2018, and paid a $20,000 deposit to obtain the extensions. The buyers were unable to obtaining financing and failed to close.

Rosehaven declined a vendor-take-back mortgage for a portion of the purchase price and resold the property in July 2019, for just over $1 million.

Rosehaven filed an expert report assessing the property’s value at $1.51 million as of April 2017, and at $1.05 million as of June 2019 (APS date of the resale).

The motion judge ordered the buyers to pay damages for failing to complete the APS. Summary judgment was granted to Rosehaven for $332,000 (the difference between the original sale price and the resale price; the damages also accounted for additionally carrying costs and credits for deposits and upgrades).

When the dispute went to the Court of Appeal, the buyers found issues with Rosehaven’s expert report. They claimed that the valuation dates were inappropriate as were the comparable residential property sales used. However, buyers failed to raise these issues at first instance in the court below. As a result, the Court of Appeal upheld the motion judge’s decision.

The key takeaway from this decision is that, had the buyer properly raised issues at the motion and provided proper competing evidence, the motion judge may have ordered a trial, rather than dispose of the case on a summary judgment.

Halliday-Shaw v. Grieco, 2023 ONCA 226

This dispute is about the failure to close due to the seller’s non-resident tax liability.

The parties signed an APS for the sale of a lakefront property in Niagara-on-the-Lake, ON. Pending the closing, issues arose over land access to the property. The buyers were concerned about potential liability for the non-resident taxes that the seller might owe.

The buyers required a transfer of interest in the private road that serviced the property. They demanded a clearance certificate from the CRA or a solicitor’s undertaking to hold back 25% of gross sales proceeds pending the receipt of the clearance certificate. The seller offered to hold back only 1% to cover his potential tax liability.

The buyers were unsatisfied with the seller’s response to the issue and the sale did not close.

The motion judge agreed that the buyers were at risk in the transaction – the seller’s tax liability could be more than the 1% he offered to hold back. The judge ruled that the holdback requisition was valid, reasonable and supported in the record.

The appellate judge dismissed the appeal and ruled that the motion judge’s decision was reasonable.

The key takeaway from this decision is that if the seller is a non-resident, the buyer may be entitled to request a significant holdback from the purchase price in a real estate transaction.

Browne v. Meunier, 2023 ONCA 223

This dispute is about the impact of limitation periods on a real estate claim.

The purchasers of a cottage on the St. Lawrence River in 2017 believed the property included a derelict boathouse that they intended to demolish.

However, the boathouse had been built by their neighbour’s predecessors in 1969 on the foreshore. It belonged to their neighbours who had purchased their property in 2015. A survey commissioned in 2018, confirmed the neighbour’s boathouse was located directly in front of their property.

The purchasers brought an application in 2020 for a declaration that the boathouse interfered with their riparian rights of access to the river.

The trial judge decided that the boathouse did restrict the purchasers’ riparian rights of access to water. But the judge ruled that the purchasers were time-barred from bringing action against neighbours by a limitation period that expired 10 years after the boathouse was built.

The appellate judge ruled that the trial judge made an error in failing to consider how common law rule of discoverability interacts with the Real Property Limitations Act. The limitation period begins to run when the facts establishing the cause of action are known. The fact should have been obvious to the purchasers’ predecessors around the time the boathouse was build. The appeal was dismissed.

The key takeaway from this decision is that purchasers of a property should carefully investigate what structures are on the property, find out how long they have been there and where they stand relative to property lines.