Firm News Alert

June 2021

The perils of failing to close a purchase and sale agreement

Case Study: Joo v. Tran, 2021 ONCA 107

Howard Borlack
Howard Borlack,
Partner

Alexandria Bonney
Alexandria Bonney,
Student-at-Law

by Howard Borlack and Alexandria Bonney

The decision of the Ontario Court of Appeal in Joo v Tran highlights the significant peril a purchaser of land can suffer when they fail to close based on an alleged failure by the seller to fulfill their obligations in the Agreement of Purchase and Sale (“APS”). The purchasers appealed the order to pay damages after they backed out of a land sale where the sellers failed to discharge all encumbrances on the land in accordance with the APS.

The Facts

In April 2017, the appellate purchasers entered into an APS with the respondent vendors to purchase the latter’s home. Through paragraph 10 of the agreement, the respondents agreed to discharge all encumbrances on the land, except for minor utility easements. Schedule A of the APS added a provision that the sellers would discharge any encumbrances before the sale closed, either by sale proceeds or solicitors undertaking. The Schedule A clause did not include the exceptions carved out in the APS for minor utility easements.

In May 2017, the APS was amended to include a building survey showing four easements registered against the property for electricity, telecommunication, and sanitation services. The purchasers asserted they were unaware of these easements and would not complete the sale unless they were removed. The sale did not proceed, and the vendors subsequently re-listed and sold the home at a loss compared to the initial deal. The vendors brought an action for breach of contract and were awarded $430,000 in damages.

...the easements would have created an absurd outcome...

The Appeal

On Appeal, the Court affirmed the trial judge’s finding that Schedule A did not impose a duty for the sellers to discharge the minor easements on the property. Schedule A’s effect was to add a solicitor’s undertaking as a means to discharge the easements; it did not remove the exceptions in the APS. The Court of Appeal also agreed with the trial judge that there was no evidence the easements would interfere with the use or enjoyment of the land. In fact, discharging the easements would have created an absurd outcome where the residential property would be without electricity, water, and sewer services.

Conclusion

The Ontario Court of Appeal upheld the judgment against the appellants and awarded costs to the respondents. This case underscores the importance of buyers completing their due diligence before signing an Agreement of Purchase and Sale. Backing out of a sale could result in significant cost consequences.

Read the full decision.


mccague borlack llp

TORONTO | OTTAWA | KITCHENER | BARRIE | LONDON

Copyright McCague Borlack LLP - Legal Notice | mccagueborlack.com | Follow us Twitter, Linkedin, Facebook

McCague Borlack LLP is a member of the Canadian Litigation Counsel, a nationwide affiliation of independent law firms. Through CLC's association with The Harmonie Group, our clients have access to legal excellence throughout North America, the U.K. and Europe.

clcnow.com | harmonie.org