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.

QUICK HITS

• JKSD made two loans to Jaymor – $250,000 and $125,000. Security was personal guarantee of Jaymor’s principal or a fourth mortgage’s registration against property.
• Jaymor defaulted on both loans. No fourth mortgage was registered on property, partly because Jaymor refused to execute authorization.
• First, the judge decided appellants didn’t have equitable fourth mortgage and lender’s remedy was to sue.
• Court of Appeal determined judge erred in finding terms of agreement uncertain as subsequent promissory note stated fourth mortgage would be registered on property in event of default.

 

In Greenspan v. Van Clieaf, the appellants, Greenspan and her lending company JKSD Management Inc. (JKSD), made two loans to Jaymor Securities Ltd., the first being for $250,000 secured by a third mortgage on a property in Richmond Hill, Ontario owned by Jaymor. Jaymor’s principal looked for another loan and provided an appraisal to show that the property could support a fourth mortgage.

Promissory note for second loan — default on both

On August 1, 2019, the parties executed a promissory note under which JKSD agreed to lend Jaymor a second loan of $125,000, which Jaymor was to repay within 30 days. Security for the loan was to be the personal guarantee of Jaymor’s principal, provided by a related company, and, if the loan was not paid in full on maturity and the default was not received afterward, then by a fourth mortgage’s registration against the Richmond Hill property.

Jaymor defaulted on both loans. No fourth mortgage was registered on the property, partly because Jaymor refused to execute an authorization for the mortgage registration.

Creditors obtained a judgment for $1,152,373.72 against Jaymor and registered a writ of seizure and execution against the property.

Property sold, equitable mortgage claimed

On March 12, 2021, the Richmond Hill property was sold for $1,560,000. After the payout of the first and second mortgages, tax arrears and the real estate commission, a balance of $548,437 remained that was subject to a dispute between the appellants and the respondents.

The appellants claimed an “equitable mortgage” over the property that took precedence over the respondents’ writ of execution. An equitable mortgage enforces “a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the common law.” It can be made in different ways, with the main element being the common intention of the borrower and lender to secure property for a past debt or future advances.

Lender to sue for breach of contract and/or negligent misrepresentation

At first, the Ontario Superior Court of Justice decided the appellants didn’t have an equitable fourth mortgage on the property. The application judge noted that Jaymor refused to execute the fourth mortgage and, at the time of maturity, had no intention of granting one — it wasn’t as though the parties didn’t intend to register a mortgage but formalities couldn’t be completed or a mistake was made.

The judge felt the right remedy for the lender was to sue for breach of contract and/or negligent misrepresentation rather than impose an equitable mortgage that interfered with the rights of execution creditors who had no other means to pursue and had taken all required steps (even during the COVID-19 pandemic) to solidify and register their interest.

Application judge made error of law

Once appealed, the Court of Appeal for Ontario held that the application judge erred in finding that JKSD did not have a valid equitable fourth mortgage. The decision focused on the written terms of the promissory note which indicated the parties intended that a fourth mortgage would be registered on the property if Jaymor defaulted on the loan. Nothing suggested that Jaymor had the discretion to decide whether or not the mortgage would be registered.

Based on the terms of the promissory note, the parties had a common intention when it was signed to grant a fourth mortgage to the appellants. That Jaymor refused to consent to the fourth mortgage’s registration and sought to retract from the agreement didn’t create ambiguity or uncertainty in the agreement to provide the fourth mortgage.

To consider the conduct of the parties after the formation of the promissory note without first determining whether the note was ambiguous was an error of law.

Accepting subsequent conduct gives undue power to create ambiguity

The Court of Appeal determined that the application judge made an error of law in finding that the terms of the agreement were uncertain because a subsequent promissory note also stated that a fourth mortgage would be registered on the property, in the event of default.

This involved subsequent conduct and there was never any conflict between enforcing the two promissory notes. Plus, the existence and terms of the subsequent promissory note could not create ambiguity with the earlier one if none existed when the parties entered into it.

The Court of Appeal’s view was that accepting the subsequent conduct created ambiguity and would give undue power to contracting parties to create ambiguity where none existed by refusing to follow through on their obligations in an agreement, or by acting in a self-serving manner after forming an agreement.

Finally, the Court of Appeal noted that considering the appellants had other means of enforcing their rights under the promissory note than by granting an equitable mortgage, or whether they had delayed taking steps to enforce their rights, was an error of law. The focus should instead stay on the terms of the promissory note when it was made. Based on the note, it was clear that the parties agreed that JKSD would have a mortgage on the property if Jaymor defaulted on the loan.

This decision affirms the fundamental principles involved in deciding whether an equitable mortgage may be enforced in circumstances where a charge or mortgage was not formally registered. The outcome may seem unfair to the execution creditors at first, but it doesn’t turn upon competing equitable claims between the parties.

The terms of the agreement between the appellants and Jaymor were not uncertain and later events or surrounding circumstances at the time of enforcement aren’t relevant in deciding whether there was an equitable mortgage to begin with.

QUICK HITS

• The Pennys built a home and lived in it without issue for four years. Their new neighbours got their property surveyed and found most of the Pennys’ garage and a corner of the house extended onto their property.
• With the neighbours not expecting to use the land at the time of purchase, the court gave jurisdiction to award damages instead of requiring remediation.
• All third parties were liable for contributory negligence: the builder 70 per cent, and the surveyor and the municipality each 15 per cent. The Pennys were compensated for the severed land purchase, damages for trespassing and land transfer.

A homeowners’ nightmare scenario of discovering their home had been constructed over the property line onto their neighbour’s land was brought to court, in Armstrong vs Penny.

Building a new waterfront property

In 1998, the Pennys hired a builder to create a custom-built home on their vacant waterfront property in Sturgeon Lake (what is now the city of Kawartha Lakes). The builder hired a surveyor to determine the boundary line for construction, and the municipality issued a building permit allowing construction to begin.

After the home was completed, the Pennys moved in and lived there for several years incident-free.

Survey reveals property crossed boundary line

Then, in 2002, the Armstrongs purchased the northern adjacent property and the following year, they obtained a survey of the property’s southern line and learned that most of the Pennys’ garage and a corner of the house extended onto their property.

Later on, the Armstrongs pursued legal action against the Pennys, stating they were trespassing. This caused the Pennys to make third-party claims against the builder, the surveyor and the municipality, alleging that those parties were negligent for allowing the home to be constructed over the boundary line.

2022 trial

Eventually, the litigation went to trial in 2022 (the reason it took so long is unknown). The trespass of the Pennys’ property onto the Armstrongs’ was evident and admitted in court, but it was unclear what should be done.

The Armstrongs felt that the most equitable, fair and balanced solution was to demolish and remove the Pennys’ garage while allowing the Pennys to purchase land needed to rebuild the garage. They would also leave a smaller piece of land so the corner of the Pennys’ house could stay.

How the court found a solution

The court felt that the Pennys weren’t at fault and shouldn’t go through the hardship of demolishing their property. It saw this as oppressive.

Instead, the court considered:

• section 99 of the Courts of Justice Act, which gives jurisdiction to award damages instead of an order requiring specific remediation, and
• section 37 of the Conveyancing and Law of Property Act, which states that a person may be entitled to retain land on which they have made lasting improvements under the belief that the land is the person’s own.

These sections were appropriate considering the garage had been in the location for many years. The court focused on the importance of prior knowledge during the purchase and each party’s expectations — that is, the Armstrongs did not expect to use the land the Pennys’ property sat on when they purchased their home.

The decision

The court ordered that the Pennys’ home and garage could remain as-is but they must pay the Armstrongs for the land used at $9.10 per square foot, plus the costs associated with the land transfer.

Also, the Armstrongs argued that the facts underlying an unjust enrichment claim were admitted — the Pennys had used the land under the garage since the Armstrongs purchased it, and the Armstrongs were deprived of using it. The court awarded general damages of $1,000.

Third-party claim against the builder

The Pennys argued that there was a breach of contract and negligence on the part of their builder, to which the trial judge agreed since the home was not entirely built within the property’s boundaries. As well, the builder didn’t complete the building permit application form correctly and failed to review a reporting letter received for work conducted before paying an invoice for that work.

This meant the builder failed to meet the required standard of care — had it not been negligent, the house would have been constructed in the correct location, and the Pennys would not be liable to the Armstrongs.

The surveyor

The court found it was critical to the whole construction process that the surveyor establish a correct boundary line. Despite the builder’s poor guidance, it was noted that surveyors should ensure clear instructions are being used and if they were lacking, that they be clarified before work commences.

Since no documents showed the surveyor inquired about the instructions, they were responsible for the choices made and found negligent in proceeding with the job, which contributed to the wrong location of the home’s construction.

The municipality

The trial judge found this was one of the rare cases where the plain facts were enough to meet the test of common sense of how the municipality breached the standard of care.

The municipality’s chief building inspector was responsible for getting further information before issuing a building permit and examining all documents filed in support of the building permit application for uncertainties, inconsistencies or omissions. Although municipalities cannot insure against all possible risks, ensuring that a structure is built within the correct property boundaries is one of its basic required functions.

Each party had different level of fault

In the end, all three third parties were liable for contributory negligence, but the builder was most at fault (70 per cent). It signed the construction contract with the Pennys and took on the responsibility to build their home and garage where directed. The builder’s role also required engaging the surveyor and the municipality, which were also at fault but not to the same degree (15 per cent each).

All compensation was to be awarded to the Pennys, including the costs for the severed land purchase, damages for trespassing and land transfer.

QUICK HITS

• An Ontario joint title holder sought a court order to sell a property registered in her name and her former sister-in-law’s.
• When respondent separated from her spouse and three mortgage payments were taken from the applicant’s account, the applicant first tried to be removed from title and mortgage, then applied to sell the property.
• The court found it unfair and oppressive to order a sale of the property since the applicant was not entitled to any of the sale proceeds and the respondent wanted to continue living there.

With the high cost of real estate in Ontario, homebuyers sometimes recruit assistance from friends and family members by agreeing to be registered as joint title holders for financing purposes. Depending on their particular situation and agreement,  they may be a “bare trustee” without any rights to sell the property if circumstances change later on.

In Weise v. Weise, the applicant sought a court order to sell a property in Sault Ste. Marie, Ontario that was jointly registered in her name with her former sister-in-law.

In 2006, the respondent began to rent the property, which backed onto her childhood home. She met the applicant’s brother (TW) in 2007, and he moved into the property with her. The respondent and TW married in September 2009.

In 2011, the respondent and TW sought out financing to buy the property from their landlords. However, they couldn’t get jointly approved for a mortgage due to their credit standing. The mortgage lender recommended TW ask his sister, the applicant, to assist.

Agreement made as joint owners

The applicant agreed to be the bare trustee of the property and that her sister-in-law would be the beneficial owner. The two parties entered into a written trust agreement and were registered as joint owners of the property.

The applicant and her sister-in-law also entered into a mortgage as joint mortgagors. The respondent was to be responsible for all expenses under their trust agreement.

TW and the respondent used a lawyer for the purchase. In his reporting letter, the lawyer stated that since the applicant was “a mere guarantor and not a trust owner other than for the purposes of the lender, we prepared a simple trust agreement between the parties to reflect this.”

After the purchase, the respondent and TW opened a joint bank account from which the mortgage payments were drawn during their marriage. The applicant made no financial contribution to the property during the respondent’s marriage to her brother.

A turn of events

In January 2021, the respondent and TW separated and TW vacated the property. The respondent remained responsible for the household maintenance and cost.

The applicant was unhappy after three mortgage payments were taken from her personal account by the lender when the respondent’s account had insufficient funds. She was repaid by the respondent but demanded that her name be removed from the title and mortgage.

The respondent contacted the mortgage lender about the required steps necessary to remove the applicant’s name from the mortgage and title. However, the mortgage company advised that they required a separation agreement to be drafted before such refinancing could be considered.

Not pleased with the delay, the applicant applied under the Ontario Partition Act for an order directing the sale of the property.

Bare trust formed even without signed agreement

Section 3(1) of the Partition Act states: “Any person interested in land in Ontario, or the guardian of a minor entitled to the immediate possession of an estate therein, may bring an action or make an application for the partition of such land or for the sale thereof under the directions of the court if such sale is considered by the court to be more advantageous to the parties interested”.

The respondent opposed the application as she had a connection to the property and wished to keep it. She had paid TW a “buy-out” for all joint property and had sought financing to ensure the home could be transferred into her name. She blamed the applicant for moving precipitously before a formal separation agreement and divorce from TW could be completed.

At the hearing in 2023, only an unsigned copy of the trust agreement was filed since a signed version couldn’t be found. However, the parties agreed that the trust agreement had been fully executed at the time of purchase in 2011.

Even though a signed copy of the trust agreement could not be located, the court noted that a bare trust may be formed without the requirement of a written document provided that the requirements to settle a trust are met: 1. intention to create a trust, 2. identification of the specific subject matter of the trust, 3. identified beneficiary of the trust and 4. transfer of the trust property to the trustee: White v Gicas.

Applicant not entitled to compel a sale

The court reviewed the wording of the lawyer’s reporting letter and found it was never intended for the applicant to have any beneficial ownership of the property and that her involvement was related to securing financing. The trust agreement gave no independent powers, discretion or responsibilities to the applicant, and she could not convey or encumber her interest in the property without written consent of the respondent.

The court also noted that the trust agreement provided that the respondent was the beneficial owner and the applicant would have no entitlement to possession and/or any of the proceeds of disposition concerning the property. The respondent was to be responsible for all expenses. The applicant’s relief from liability was indemnification from and to be saved harmless by the respondent only.

No term permitted her to seek partition and/or sale of the property. In the court’s view, it was the applicant’s choice to assist her brother and the respondent and she agreed to be a bare trustee rather than a joint owner with rights, powers and obligations. 

In the end, the applicant was not entitled to compel a sale since she was not entitled to the immediate possession of the property under 3(1) of the Partition Act. As well, the respondent was taking steps to resolve the issues arising from the breakdown of her marriage to TW. This was taking time, and there was no evidence provided to indicate that the time taken to date was unreasonable in the circumstances.

“Unfair and oppressive to order a sale”

The court also found that it would be unfair and oppressive to order a sale of the property in the circumstances since the applicant was not entitled to any of the proceeds of the sale and the respondent wanted to continue living in the home as she had since 2007.

The lender had advised that the applicant could be removed from title and the encumbrance once the separation with TW was finalized. In the meantime, the court did not consider a sale to be more advantageous to the parties, so the application was dismissed.

This decision demonstrates the potential issues that may arise when someone agrees to become a bare trustee. What may seem like a kind and generous gesture at the time may result in long-term commitments that are difficult to end. However, there wasn’t any evidence of incurred or anticipated harm to the applicant since no claims for indemnification were being made. In the application judge’s words, the applicant’s request for relief under the Partition Act was “putting the cart before the horse,” to potentially satisfy a judgment that did not exist.

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.