In a recent case before the Ontario Court of Appeal, Tega Homes (Attika) Inc. v. Spencedale Properties Ltd., an appellant brought a motion to enforce the sale of two pieces of real estate. The problem at the heart of the appeal was the existence of Certificates of Pending Litigation attached to those properties.
What is a Certificate of Pending Litigation?
A Certificate of Pending Litigation is attached to residential or commercial properties under dispute. It is used when a party is not the registered owner on the title of a property but claims an interest in that property. This is common in real estate disputes containing an established Agreement of Purchase and Sale. It is a way to ensure the public is aware that there are interests to be litigated in relation to the property, which is critical knowledge for potential buyers and creditors.
Multiple Agreements for Purchase and Sale entered into for purchase of two Ottawa properties
The appellants, Spencedale Properties Ltd. and Markton Properties Ltd., owned two Ottawa properties that the respondent, Tega Homes, had agreed to acquire in 2013. The closing date was moved five times through amendments to the Agreement of Purchase and Sale.
Under the Agreement of Purchase and Sale, the purchase price for the properties was $8.5 million. Under the fourth version of the Agreement of Purchase and Sale, payment would be on the following terms: $2.5 million in cash and the balance “provided by way of a vendor take-back mortgage.”
Purchaser brought an action to enforce Agreement of Purchase and Sale
As the Agreement of Purchase and Sale did not close, Tega Homes commenced an action against Spencedale and Markton in 2015 for breach of contract. Tega Homes sought specific performance to force the sale to close or, in the alternative, an award of damages. That same year, Tega Homes obtained Certificates of Pending Litigation and registered them against the properties.
In March 2016, the parties entered into two contracts intended to facilitate Spencedale and Markton’s refinancing of the properties.
Purchaser awarded $1.5 million in damages, sellers moved to discharge Certificates of Pending Litigation
Tega Homes subsequently abandoned its request for specific performance and pursued damages through a summary judgment motion. In 2018, a judge held that Spencedale and Markton had breached the Agreement for Purchase and Sale. A further trial was held in 2021 to assess damages. Both parties were granted damages, with the net award being granted in favour of Tega Homes for nearly $1.5 million. An appeal of the damages is scheduled to be heard in January 2023.
In April 2022, Tega Homes obtained a writ of seizure and sale for the amount of the judgment. In return, Spencedale and Markton brought a motion in the Ontario Superior Court of Justice to discharge the Certificates of Pending Litigation from the properties. When that motion was denied, Spencedale and Markton appealed.
Court of Appeal had to determine whether Certificates of Pending Litigation could be removed
On appeal, the Court of Appeal focused on two main issues:
- Did the contracts signed between the parties in March 2016 preclude Spencedale and Markton from obtaining the removal of the Certificates of Pending Litigation?
- If the Certificates of Pending Litigation should be removed, what amount of money should Spencedale and Markton pay into court as security?
Purchaser objected to sale of properties based on two prior agreements
Tega Homes argued to the Court of Appeal that Spencedale and Markton should not be permitted to sell the properties to another buyer before all outstanding appeals were resolved in January 2023. Tega pointed to the agreements entered into between the parties in March 2016. Paragraph 3 of the first agreement read, in part:
3. … In case a sale occurs before [Tega Homes]’s damages have been agreed upon, determined by the Court and/or paid, the proceeds of the sale will be payable into Court until the complete resolution of the dispute.
Further, paragraphs 3 and 4 of the second agreement from March 2016 stated:
3. Subject to paragraphs 1 and 2 above, in case a sale occurs before damages have been agreed upon between Tega and the Owner, determined by the Court and/or paid, the proceeds of the sale will be payable into Court until the complete resolution of the dispute;
4. The Owner and Lender agree to not take any steps to discharge the Certificates of Pending Litigation registered as Instrument Nos. OC1690052 and OC1690053, without the consent of Tega.
Agreements contemplated the sale of the properties before the conclusion of any appeals
The Court of Appeal found that both of the March 2016 agreements contemplated that Spencedale and Markton could sell the properties before the conclusion of the other appeals. The Court stated:
“… a reasonable reading of the March 2016 agreements indicates that the parties intended their provisions to remain in effect until there had been a final determination of [Tega Homes’] claim to damages.”
Court of Appeal determined reasonable amount of security to pay for removing Certificates of Pending Litigation
Spencedale and Markton sought to pay the judgment, post-judgment interest, and Tega Homes’ appeal costs in lieu of the sale proceeds (had the sale been finalized). In response, Tega Homes argued that the March 2016 agreements did not allow for the removal of the Certificates of Pending Litigation before all appeals were resolved. In the alternative, Tega Homes argued that the 2016 agreements required Spencedale and Markton to pay sale proceeds of roughly $2.5 million on closing.
The Court of Appeal disagreed with both submissions. While the $2.5 million amount was somewhat supported by the language of the March 2016 agreements, the Court found this to be a disproportionate amount to be paid as security.
The initial judgment awarded to Tega Homes was $1,498,026. Post-judgment interest of 2% per annum for 18 months from January 5, 2022, was calculated at $44,940.78. The Court also ordered $150,000 to be included in the security to cover costs, including those related to the appeal. In total, the Court of Appeal ordered Spencedale and Markton to pay $1,692,966 to be paid as security, rounded up to $1,750,000 to balance Tega Homes’ interests.
Campbells LLP: Providing Skilled Real Estate Litigation Services in Oakville
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