A recent decision of the Ontario Superior Court of Justice affirmed that preliminary discussions between a buyer and seller regarding the potential zoning or future uses of a property are generally superseded by the written terms of the purchase agreement.

Story continues below

In Christine Elliott v. Saverio Montemarano, 2020 ONSC 6852 (CanLII), the plaintiff had entered into an Agreement of Purchase and Sale (APS) in February 2017 to sell a property in Whitby, Ont. to the defendant for $5 million. The defendant intended to build a retirement home on the property, which had a large historical home at the time of the transaction.

The lands were zoned “Development Zone, Institutional and RSA Residential,” but there was a site specific bylaw that defined the term “institutional” as permitting only a church. The defendant had a land use planner who made inquiries of the municipality before and after the defendant executed the APS. The municipality advised that the defendant would require a bylaw amendment to permit a seniors’ residence and that a pre-consultation meeting would be required for the proposed land use.

A number of extensions were granted, but the plaintiff eventually tendered and the defendant failed to close. In response to the plaintiff’s claim for damages, the defendant alleged that the plaintiff had withheld critical information regarding the zoning bylaw restrictions, had misrepresented what could be done with the property, and failed to provide a further extension to allow him to address the bylaw restrictions.

The defendant alleged that he had a long-term friendship with the plaintiff and that he had relied on her representations as well as those of her late husband regarding the development potential for the land. While the defendant was aware that there was approval for a church to be built, he claimed that he didn’t understand that the bylaw permitted only a church.

In November 2020, Madam Justice Papageorgiou of the Ontario Superior Court of Justice granted summary judgment to the plaintiff.

With regard to the allegation that the plaintiff had failed to disclose the zoning bylaw, Justice Papageorgiou noted that a municipal bylaw is a matter of public record and there was no evidence from the defendant’s land use planner indicating that the bylaw was somehow hidden or difficult to find.

In dismissing the defendant’s allegations of what he had been told by the plaintiff and her late husband, Justice Papageorgiou found that any such pre-contractual representations were negated by the specific written terms in the APS, namely:

  • an Entire Agreement Clause (providing that there are no representations, collateral agreements or conditions in addition to the written terms of the APS);
  • a Future Use Clause (providing that there was no representation or warranty about the future intended use of the property aside from what was provided in the APS); and
  • an As-Is-Whereas Clause, which provided that the parties agreed that the property was being sold on an “as is whereas” basis and that no warranties would be given on closing.

All of those terms in the APS meant that there were no representations or warranties of any kind being made by the plaintiff with regard to future uses of the property.

In addition, the defendant’s own conduct demonstrated that he was not relying on the plaintiff’s representations (or omissions) about the property, since he had engaged a land use planner and relied on the planner to make all the necessary investigations with the municipality. In Justice Papageorgiou’s words, “The defendant cannot hold the plaintiff responsible for his and his own planner’s failure to properly investigate the property.”

Lastly, the plaintiff was not obligated to provide any further extensions to the defendant, notwithstanding a term in the APS that provided that the parties agreed that the closing date may be adjusted, as mutually agreed between the parties. The wording of the APS was clear and unambiguous and any extensions were to be mutually agreed.

Justice Papageorgiou found that the plaintiff had acted reasonably in granting some initial extensions and in refusing any further requests.

As a result, the defendant was liable to the plaintiff for failing to complete the purchase of the property. After the transaction failed to close in October 2017, the plaintiff sold the property to another buyer for $4.3 million. The plaintiff was entitled damages of just over $1 million, based on the lower sale price, the real estate commission of $242,950 (as the aborted sale was a private transaction without commission), carrying costs and interest on a bridge financing loan, which was necessary because the plaintiff had intended to use the proceeds to finance her purchase of a new home.

The decision demonstrates that a buyer should attempt to conduct sufficient due diligence to ensure that their future intended use of a property will be permitted before entering into an APS. As the written terms of an APS will generally supersede any prior communications between a buyer and seller, a buyer should ensure that the APS expressly confirms any representations or warranties that are intended to legally bind the seller.

4 COMMENTS

  1. “The aborted sale was a private transaction without commission.” If the buyer would have used a Realtor looking at his best interests, it would have been less expensive than the damages of just over $1m. Another example of what may happen when you don’t use a professional and things go wrong.

    • Not necessarily. Some buyer agents wouldn’t know better either and would lead a client into the exact same thing. Not us after reading this though!

      Thank you for sharing this precedent!! :)

  2. #! The Seller (look at name on Case citation) and her late husband (Jim Flaherty) is/are not “just anybody” – both are/were well-known Whitby politicians and Min of Crown.
    #2 This was a Private Sale between two people who already knew each other
    #3 The Seller is a lawyer
    #4 After time extensions, the transaction failed to close in Oct 2017 … no mention of when it was arranged.
    Is it reasonable to say it was arranged 6-12 months before closing ie Nov 2016 through April 2017?

    #5 Is it possible the market conditions had changed between APS date and closing?
    #6 Is it possible the Buyer wanted out because of reasons ‘other than’ his reliance on the Seller’s verbal assurances of possible up-zoning?

    This REM report has brought the case and decision to the attention of many Registrants – we must thank the author and REM for this courtesy.

  3. Yup: Forget about what a salesperson or vendor/seller says about one’s property’s characteristics and legalities when trying to sell same. Treat everything verbalized as suspect…if you’re smart. Read ‘everything’ contained within an APS…especially the fine print; it’s fine print on purpose…so you’ll miss it. Make sure you understand everything. Don’t allow yourself to be hustled into signing “before someone else takes it from under your nose”; that’s what hucksters say, so don’t ever believe those warnings. Don’t ever allow yourself to want to buy something badly, and don’t ever telegraph that attitude even if you do. The very second you feel pressured as a buyer…react affirmatively…by putting on the brakes. Emotionally-driven decisions will land you in a heap of trouble almost every time. Let them think you’re an asshole. You are allowed to think the same in reverse. There’s always another property…maybe an even better one.

LEAVE A REPLY

Please enter your comment!
Please enter your name here