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SALE OF LAND - Agreement of purchase and sale - Specific performance

Wednesday, March 31, 2021 @ 6:30 AM  

Lexis Advance® Quicklaw®
Appeal by the vendor from a decision finding that the vendor wrongfully terminated the agreement of purchase and sale and granting the purchasers specific performance. In 2015, the respondents entered into a pre-construction agreement for the purchase of a condominium unit. In February 2019, just prior to the sale’s scheduled closing, the vendor purported to terminate the Agreement and forfeit the respondents’ deposit because the respondents had breached the Agreement by leasing the unit during the interim occupancy period without the vendor’s permission. The vendor then entered into an agreement to resell the unit to relatives under very favourable terms. The respondents commenced an application seeking relief from forfeiture and, in effect, specific performance of the Agreement. The application judge found the respondents had not breached the Agreement because they never had a lease agreement with the tenant and he never paid rent. He found the respondents had simply loaned out the unit for a short time. Even if there had been a breach, the application judge concluded that the vendor affirmed the Agreement by its conduct by not taking any steps to terminate the Agreement after becoming aware of the alleged breach by September 2018 at the latest. In granting specific performance, the application judge held that uniqueness arose not from the respondents’ subjective needs or the unit’s physical characteristics, but because the Agreement contained advantageous terms and could not have been readily duplicated in Toronto’s competitive, volatile real estate market. The application judge also held that the vendor’s conduct favoured granting specific performance since the vendor had continued to accept payments from the respondents while improperly trying to use the allegation of a breach to avoid its responsibility to replace a bathtub. The judge found that the vendor’s subsequent sale, which was not at arm’s length and did not contain commercially reasonable terms, was a sham designed to put the unit out of the respondents’ reach.

HELD: Appeal dismissed. The application judge did not err in concluding that, by not treating the Agreement at an end and incapable of rectification when it knew of the breach, at latest by September 2018, the vendor lost the right to terminate and claim the deposits and fees as liquidated damages. There was no breach in February 2019 as the tenant had moved out long ago, and nothing stood in the way of closing the sale. The vendor thus acted wrongly in terminating the Agreement. The application judge correctly identified the principles governing the remedy of specific performance. During many months after September 2018, the vendor accepted the respondents’ monthly interim occupancy payments and worked to remedy a bathtub deficiency. There was no reversible error in the application judge’s finding that the vendor, by its conduct, lost the right to rely on the alleged breach by the respondents as a basis to terminate the Agreement. There was also no error in the application judge’s determination that the respondents had shown that specific performance of conveying the unit, rather than awarding its monetary equivalent, better served justice between the parties. He properly applied the controlling principles to the evidence before him. Rather than focus solely on the uniqueness of the unit itself, he conducted a broad critical inquiry as to the adequacy of damages having regard to the circumstances of the transaction as a whole. Based on this inquiry, the application judge was entitled to conclude that specific performance would best serve justice between the parties.

Lucas v. 1858793 Ontario Inc. (c.o.b. Howard Park), [2021] O.J. No. 356, Ontario Court of Appeal, A. Hoy, D.M. Brown and J.A. Thorburn JJ.A., January 28, 2021. Digest No. TLD-March292021006