Litigation / Real Estate Law

Title Not Easy to Use as a Means to Back out of a Purchase

When entering into an Agreement of Purchase and Sale (APS) for a home, the parties have to be sure of their decision. Extracting yourself from an APS, once it is clear of any and all conditions, is not an easy task. In some cases, if a vendor is found to have concealed pertinent information, this may be sufficient to void a contract. However, there are many reasons a purchaser might challenge an APS hoping to relieve themselves of their obligation to go through with the purchase that will not suffice. For example, we wrote back in January about a purchaser who tried to claim that Ontario’s non-resident speculation tax, which had come into effect after signing the APS but before closing, was a valid reason to back out of the purchase. In that case, the Ontario Court of Appeal disagreed with the buyer.

In another recent Ontario decision, a purchase tried to void an APS on the basis of discovering municipal easements across the yard of a home they had purchased. Would this be sufficient to invalidate the contract?

Municipal Easements Discovered After the Purchase

The purchasers entered into an APS on February 1, 2020, to buy a residential property for the price of $1,755,000. They put down a deposit of $75,000. The purchase was scheduled to close at the end of June.

The APS contained a clause regarding the vendor’s obligation as to the property’s title, which stated:

Provided that title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement and save and except for …

(d) any easements for drainage, storm or sanitary sewers, public utility lines, telecommunication lines, cable television lines, or other services which do not materially affect the use of the property.

If within the specified times referred to in paragraph 8 any valid objection to title … or to the fact that the said present use may not be lawfully continued … and which Buyer will not waive, the Agreement, notwithstanding any intermediate acts of negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objection so made by such day and except for any objection going to the root of title, Buyer shall be conclusively deemed to have accepted Seller’s title to the property.

Approximately three months after signing the APS, the purchasers discovered the existence of two easements across the yard of the property in favour of the Town of Newmarket. Both easements are there to allow the municipality to maintain and tend to the sanitary and storm sewer systems. The easements require that the property owner refrain from trees, buildings, structures or other obstructions.

The purchasers brought an application to rescind the APS on the basis that they had not been informed of the easements prior to purchase, claiming they would not have gone ahead with the transaction had they been aware of the easements. They claimed the vendors were failing to provide good title in accordance with the above term of the contract. The purchasers claimed that the easements interfered with their planned use of the property, which had included:

  • extending an existing concrete pad over the area,
  • planting fruit trees in the yard,
  • installing an in-ground hot tub, and
  • erecting a cabana structure

Buyers’ Motivations Questioned

One of the purchasers was a licensed real estate agent, who by trade, was familiar with terms used in real estate purchase contracts. The vendors did not attach a survey of the property to the APS, which would have clearly shown the two easements, however Schedule B of the APS did indicate that title was subject to two registered encumbrances. As a real estate agent, the purchaser should have known this indicated easements were present. Considering his assertion that his plans for the yard were a primary reason he purchased the property, the court found it odd that he did not make further enquiries into the registered easements. This led the court to surmise that the purchasers were attempting the use the existence of the easements as a reason to back out of the purchase.

Easements Did Not Materially Affect the Property

The court found that the land affected by the easements accounted for 14% of the overall property, and that the Town of Newmarket had not accessed the easements in the previous nine years. Further, the proposed changes the purchasers wished to make were all still possible, despite the easements. While some changes may need to be scaled back in terms of size, the court found that there was still plenty of room to install a cabana, a fireplace, plant fruit trees and install a hot tub on the property. As a result, the application was denied.

The case shows that it will not be an easy task to convince a court to rescind an APS. Buyers need to be cautious when attempting to find a loophole to invalidate an agreement, or they may find themselves held to the contract in addition to paying costly legal fees associated with litigation.

The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and salesfinancing and even litigation if necessary. The firm offers exceptional client service as well as a Bay St. experience with more reasonable rates. Call 416-272-7557 or complete the online form to arrange a consultation.