It is customary for the purchaser of real estate (both commercial and residential) to make a deposit to be held in trust and eventually applied to the purchase price on completion of the transaction. The deposit is often held by the vendors real estate agent in trust. Issues, however, can arise if and when the purchaser discovers that there are problems or faults with the property which were not “patent” or disclosed by the vendor. If the purchaser refuses to close as a result of any such problems, then the issue of who gets to keep the deposit becomes very real.
OREA Agreement of Purchase & Sale
The Ontario Real Estate Association (OREA) provides a standard contract form known as an Agreement of Purchase and Sale. It sets out the terms and conditions of the sale including issues related to the deposit and its use or forfeiture and is commonly used in real estate transactions.
A Property’s Dimensions
The OREA form calls for a description of the property being sold which must include the dimensions of both the frontage and depth of the property. The form allows for some accuracy variance in the dimensions listed by adding the words “more or less” following the stated dimensions. What happens if the dimensions are significantly in error. What happens if the error was unknown to the vendor as well. Who bears the risk.
The issue recently came before the Ontario Court of Appeal (OCA) in Hosseinzadeh v. Pringle. The appellant purchaser had made a deposit of $100,000.00 towards the purchase of a residential home in Toronto. This may seem large to some readers but when measured against the value of homes in the GTA it is not. The sale price was $1,200,000.00 so the deposit was less than 10% of the sale price. In any event, it is a significant amount of money to forfeit.
The lot’s dimensions in the MLS listing were stated to be a frontage of 87.64 feet, more or less, by a depth of 100 feet, more or less. The vendor did not have a survey and the frontage came from a tax role document and the depth was the result of a measurement made by the vendor’s agent. These dimensions were repeated in the offer by the purchasor. The vendor accepted the offer but added the handwritten words “to be verified” above the typed depth dimension of 100 feet.
The purchaser on inspecting the property determined that the dimensions were inaccurate. The actual dimensions were a frontage of 78.3 feet and a depth of 145.17 feet. The purchaser’s plan was to subdivide the property. As a result of the discrepancy, he refused to close unless the purchase price was reduced to $1,050,000.00. The vendor refused to close and claimed the deposit was forfeit as a result.
More or Less
The meaning of those words in the OREA form had been dealt with before by the OCA in Bouskill v. Campea et al
There, it was decided that where there was a significant discrepancy between the listed and actual dimensions of the property that the purchaser was allowed to resile from the transaction and obtain the return of the deposit. The motions judge below had determined that the discrepancy was significant. The OCA agreed. Did the handwritten proviso make any difference to the result?
To Be Verified
The trial judge felt it did make a difference and hence distinguished these facts from the previous cases dealing only with the “more or less” wording. He felt the addition of the words “to be verified” made it the responsibility of the purchaser to verify the properties dimensions before accepting the counteroffer, and if he did not, that he accepted the risk of any variance.
Standard of Review
The standard of review when dealing with a handwritten addition to a standard contract is normally done with a deferential review following the Supreme Court of Canada’s (SCC) decision in Sattva Capital Corp v. Creston Moly Corp. However as this was a manual addition to the OREA form the principle in another SCC decision, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. would apply and mean that the review was to be based on the correctness standard. The OCA did not decide on the standard of review here but concluded that the motions judge decision on the meaning of the handwritten words was both incorrect and tainted by a palpable and overriding error.
The OCA determined that the added wording was not a part of the contract until accepted by all. Therefore, it imposed no obligation on the purchaser to verify the dimensions before signing. It simply signified to all that the dimensions were not based on a survey and had, therefore, to be verified. It was not a representation by the vendor. Further, there was nothing in the addition which suggested that the risk passed to the purchaser or negated the words “more or less”. As a result the transaction could be voided by the purchaser and he was entitled to have his deposit returned.
Where a failed real estate transaction involves a commercial property, the potential damages that may attach to the breach of the purchase and sale agreement can be in the hundreds of thousands of dollars. If you are a buyer or a seller and the real estate deal you were hoping to finalize does not close, obtain advice from a commercial real estate lawyer as soon as possible.
Real Estate litigation, particularly commercial real estate litigation, is complex, expensive, and often unpredictable. Litigation counsel must know how to gauge and manage risk, keep costs down with efficient and effective strategy, and guide clients through the choices they will face as litigation evolves.
At Milosevic Fiske LLP we provide thorough, multi-disciplinary legal advice and representation at mediations, hearings, and trials. Over the years, our lawyers have seen it all and our impressive track record speaks for itself. Call us at 416-916-1387 or contact us online to learn how we can help.