In a recent Ontario Court of Appeal decision, the court ruled in favour of a couple whose agreement of purchase and sale for a condominium was terminated by the vendor after they had allowed a friend to stay in their unit rent-free.

Vendor Terminates Agreement

A married couple entered into an agreement with the vendor company for the purchase and sale of a condominium unit in Toronto for the price of $369,900 in January 2015. The vendor was a condominium development company which was owned and operated by two brothers.

Section 18 of the agreement provided that if a purchaser leased a unit during the occupancy period without first securing the vendor’s written consent, a breach would have occurred and “such breach is or shall be incapable of rectification.”

In February 2019, just prior to the sale’s scheduled closing, the vendor purported to terminate the agreement and forfeited the couple’s deposit of $73,980. The vendor claimed that the couple had breached the agreement by leasing the unit to a tenant during the interim occupancy period without its permission.

Subsequently, on March 12, 2019, the vendor entered into an agreement to re-sell the unit to the one of the brother’s two children. The couple registered a caution on title which prevented the sale to the children from closing.

The couple then commenced an application seeking relief from forfeiture and specific performance of the agreement.

The couple argued that they had not breached the agreement because they never had a lease agreement with their friend who was occupying the unit and he had never paid rent; in fact, the friend was the husband’s former co-worker and they were allowing him to live there for a short time. In the alternative, if they had breached the agreement, the couple submitted that the vendor had not treated the occupancy as a fundamental breach within a reasonable time and had thereby waived its termination and forfeiture rights.

Application Judge Rules in Favour of Couple

The application judge agreed with the couple. First, he found that they had simply “loaned” the unit to the friend for a short time, without a lease agreement, and had received no rent or other benefits from him. As such, the judge held that there was no lease and therefore no breach of the agreement. Further, even if there had been a breach, the application judge concluded that the vendor affirmed the agreement by its conduct after learning of the occupancy. He found the vendor had become aware of the alleged breach by September 21, 2018 at latest, but did not exercise its right to treat the contract at an end within a reasonable time. Instead, the vendor had continued to accept occupancy payments until February 2019 and thus lost the right to terminate. The application judge therefore granted the couple’s application, concluding that the vendor had wrongfully terminated the agreement, declaring the sale to the brother’s children null and void, and ordering the vendor to close the sale of the property to the couple.

The children and the vendor appealed, arguing that the application judge had erred by finding that the vendor had wrongfully terminated the agreement and submitting that the application judge had misapplied remedial principles in awarding specific performance.

Court of Appeal Dismisses Appeal

The court began by noting that while Section 18 of the agreement provided that its breach was incapable of rectification, it also observed that such a breach did not cause an immediate termination of the agreement. Instead, the agreement stated that the vendor would have the option of terminating the agreement. However, upon learning of the couple’s friend’s occupancy of the unit, the vendor did not exercise its termination rights, instead waiting many months to do so while continuing to accept the couple’s monthly interim occupancy payments.

After reviewing the application judge’s reasoning, the court agreed that the vendor was under an obligation to elect to treat the contract at an end and communicate that election to the repudiating party “within a reasonable time”, which it did not do.

As a result, the court rejected the first ground of appeal.

Additionally, the court found no error with the application judge’s decision to grant specific performance in favour of the couple, finding that the judge was entitled to conclude that the vendor had acted in bad faith in terminating the agreementand that specific performance would best serve justice between the parties.

The appeal was therefore dismissed.

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Whether you are buying your first home, purchasing a cottage or investment property, or selling your home to downsize to a condo, the real estate lawyers at Campbells LLP can guide you through every step of your residential real estate transaction. We will explain your options, review all relevant paperwork and contracts, negotiate on your behalf, and defend your interests in any potential disputes that may arise.

At Campbells LLP, we understand that the majority of real estate transactions occur in the evenings or on weekends. One of our lawyers would be happy to meet with you, by appointment, at a time and date that works best with your schedule. To learn more about how we can make the buying and selling process less stressful, contact us online or at (905) 828-2247. We look forward to speaking with you.