The Ontario Court of Appeal recently refused to let a buyer recover the $200,000 deposit she made on a real estate deal after a dispute over the property’s zoning.
The buyer had made a claim for the recovery of a $200,000 deposit paid for the purchase and sale of a property in Toronto. The property was zoned as a residential zoning in which office space was permitted. It had been used by the seller as a commercial office space prior to being put on the market.
The buyer’s initial recovery claim was heard by way of summary judgment (i.e. without a full trial). She argued that she was not required to close the transaction and was entitled to the return of the deposit because the seller had misrepresented the nature of the property (i.e. the seller had told the buyer that the property was zoned commercial when in fact it was zoned residential).
After hearing oral evidence from three witnesses, the motion judge had dismissed her allegations that the seller had misrepresented the zoning of the property.
The judge also concluded that there had been no breach of the purchase and sale agreement by the seller and further found that there had been an anticipatory breach by the buyer, which entitled the seller to keep the deposit. Finally, the motion judge rejected the buyer’s argument that it was unconscionable for the seller to keep the deposit.
The buyer appealed to the Ontario Court of Appeal.
The buyer raised two issues on appeal:
- The buyer argued that the motion judge erred in failing to find that the seller’s agent had negligently represented that the property was zoned commercial when in fact it was zoned residential. The buyer submitted that the negligent misrepresentation was such that the seller could not rely on the agreement of purchase and sale and could not therefore keep the deposit.
- The buyer further argued that the motion judge had erred in failing to find that the respondent was not ready, willing and able to close the deal, which is a requirement for the seller to keep the deposit.
On the first issue, the court did not conclude that the motion judge had made an error. Rather, it found that the motion judge’s conclusion that the seller’s agent never represented the property as being zoned commercial was based on a consideration of all relevant evidence and should not be interfered with.
On the second issue, the court noted that the buyer had argued that the seller was in breach of the agreement of purchase and sale by failing to respond to requisitions to certify that the transaction was not subject to HST and to provide a survey. The motion judge had concluded that the agreement of purchase and sale did not impose such obligations and that the seller’s lawyer’s failure to respond to the buyer’s lawyer’s requisitions did not relieve the buyer of the obligation to close the transaction.
Further, the court noted that the motion judge had been satisfied, based on the evidence, that the seller had provided a survey and that it had properly refused to sign a certificate that HST was not applicable. The court found that these conclusions were fully supported by the evidence.
Finally, the buyer had argued that the motion judge erred in finding that the buyer’s anticipatory breach entitled the seller to keep the deposit.
The court disagreed with the buyer’s argument that the seller had chosen to keep the agreement alive and then breached the agreement by failing to set a new closing date and by making a defective tender. Instead, the court agreed with the motion judge’s finding that the seller had clearly elected to terminate the agreement for breach of contract, keep the deposit, and preserve its right to sue for damages in response to the buyer’s repudiation.
As a result, the court dismissed the appeal. The seller was allowed to keep the $200,000 deposit and the court awarded costs to the seller in the amount of $9,000.
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There are significant legal and financial risks in entering into a residential real estate transaction. Such large purchases should not be made without proper guidance from an experienced lawyer. Without sound legal advice, you could end up paying more than you should for your home, or accept an offer that is too low, or worse yet, end up with a transaction that falls through due to missed paperwork, or details and technicalities that go unnoticed.
At DBH Law in Calgary, our real estate lawyers have more than 25 years of combined experience acting for purchasers, lenders, and developers through all stages of residential real estate transactions.
We help our clients avoid huge areas of risk, including poorly drafted or incomplete agreements of purchase and sale, hidden fees, encroachment or easement issues, complex concerns like properties held in trust, and similar pitfalls. We also look for contract language which may impose unfavourable duties or obligations. To learn more about how we can help, contact us online or by phone at 403.252.9937.