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23 April 2019
In Fortress Carlyle Peter St Inc v Ricki's Construction and Painting Inc (2019 ONSC 1507), a recent Ontario Superior Court of Justice decision, Justice Perell outlines when specific performance will be available in a real estate transaction. The decision is a stark reminder of the pitfalls of acting both in bad faith and without diligence in respect of such a transaction.
In Fortress Carlyle, the plaintiff purchaser, Fortress Carlyle Peter St Inc, obtained summary judgment for specific performance of an agreement of purchase and sale against the defendant vendor, Ricki's Construction and Painting Inc.(1) The agreement was for a downtown Toronto property municipally known as 120 Peter St, which had been part of the purchaser's land assembly plans for a condominium project.(2)
In Summer 2017 the parties signed a letter of intent for the purchase of the property.(3) The letter provided that:
In August 2017 the vendor's lawyer advised the purchaser's lawyer that one tenant occupied certain premises on the property pursuant to an offer to lease, rather than a formal lease.(5) The vendor's lawyer had provided the purchaser's lawyer with this offer to lease,(6) which provided that the tenant would vacate the premises on 90 days prior written notice, should the landlord decide to demolish the building on the property (the demolition clause).(7) The demolition clause was important to the purchaser as it would facilitate its condominium development plans.(8)
In September 2017 the parties entered into a standard form agreement of purchase and sale in order to complete the sale of the property.(9) This agreement had three notable features:
On 31 July 2018 the vendor's lawyer advised the purchaser's lawyer that there was only one tenant, 1730474 Ontario Inc (173), occupying the property, and that 173 would be providing an estoppel.(13) The next day, the vendor's lawyer gave the vendor an estoppel certificate to be signed.(14) This estoppel was consistent with the offer to lease that the vendor's lawyer had previously provided to the purchaser's lawyer. Notably, this estoppel referred to the demolition clause.(15)
By 8 August 2018, which was the due date for the estoppel under the agreement of purchase and sale, the purchaser's lawyer had not yet received 173's executed estoppel.(16) Until the 13 August 2018 closing date, the purchaser's lawyer persisted in requesting this estoppel from the vendor.(17)
On the closing date, the vendor's lawyer forwarded 173's executed estoppel to the purchaser's lawyer. Unbeknownst to the vendor's lawyer, who did not review this estoppel,(18) the vendor had materially altered the estoppel such that it was inconsistent with what the vendor's lawyer had represented to the purchaser's lawyer regarding the leases in connection with the property.(19) Notably, this estoppel did not refer to the demolition clause.(20) The purchaser's lawyer reviewed this estoppel and asked the vendor's lawyer whether the estoppel was accurate, as it did not reflect the offer to lease that the vendor's lawyer had previously supplied to the purchaser's lawyer.(21)
Just before 5:00pm on the closing date, the vendor's lawyer forwarded a revised and accurate estoppel.(22) Around that time, the purchaser's lawyer advised the vendor's lawyer that the purchaser's law firm was not in funds and accordingly asked to extend closing to the following morning.(23) In response, at 6:00pm that day, the vendor's lawyer advised the purchaser's lawyer that the vendor was ready, willing and able to close, and threatened termination of the agreement of purchase and sale should the vendor's lawyer not receive the closing funds at that time.(24)
The purchaser's law firm became in funds just after 6:00pm on the closing date.(25) Shortly thereafter, the purchaser's lawyer advised the vendor's lawyer that the purchaser was in funds and ready, willing and able to close.(26) The vendor's lawyer responded a day later, taking the position that the vendor was entitled to terminate the agreement of purchase and sale and retain the purchaser's deposit due to the alleged failure of the purchaser to pay the purchase price balance by 6:00pm on the closing date.(27) The purchaser registered a caution against title to the property the day after the closing date and issued its statement of claim shortly thereafter.(28)
Perell concluded that the purchaser was entitled to specific performance of the agreement of purchase and sale, relying on the following principles in relation to agreements of purchase and sale of land:(29)
First, Perell reasoned that the vendor's failure to deliver the estoppel when it was due and the delivery of the altered, false estoppel (which was a deceitful act) had constituted breaches of the agreement of purchase and sale.(30) Either breach would have entitled the purchaser to rescind or terminate the agreement of purchase and sale.(31) However, the purchaser had kept it alive by persisting in its request for the delivery of the estoppel in the former situation and the delivery of an accurate estoppel in the latter situation.(32)
Second, due to the vendor's breaches as well as its late delivery of a suitable estoppel for 173, the vendor could no longer insist on time being of the essence.(33) Accordingly, the vendor could not terminate the agreement of purchase and sale for an alleged untimely performance of the purchaser's delivery of closing funds.(34) Given the vendor's misconduct, the vendor had not been ready, willing and able to close, nor could the vendor claim that it had not been the cause of delay or default in performing the contract.(35)
Perell ultimately granted the purchaser's motion for summary judgment for specific performance of the agreement of purchase and sale, reasoning that the purchaser had acted in good faith and satisfied the preconditions for a claim for specific performance.(36) But for the vendor's misconduct, the purchaser would have been ready, willing and able to close on the closing date.(37) Alternatively, if both the purchaser and vendor were in breach, the contract would have remained alive with time no longer of the essence and with either party capable of restoring time of the essence by giving the other party reasonable notice of a new date for performance, which the purchaser's lawyer did by requesting that the transaction close the following day.(38)
This decision is a reminder that time may not be used as both a sword and a shield. Put simply, a party to an agreement of purchase and sale cannot insist that time is of the essence if it:
As in this case, provided that the purchaser acts in good faith and provided that the purchaser is ready, willing and able to close or, if both parties are in breach, the purchaser gives reasonable notice of a new date for performance, the purchaser will be granted specific performance.
Perhaps just as importantly, this decision is a reminder that not only will a purchaser that acts in good faith be granted specific performance, but also that they may proceed summarily to obtain judgment by showing that there is no genuine issue requiring a trial.
For further information on this topic please contact Marina E Sampson or Dennis Wong at Dentons Canada LLP by telephone (+1 416 863 4511) or email (email@example.com or firstname.lastname@example.org). The Dentons website can be accessed at www.dentons.com.
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