Author: alyssa

When entering into a contractual agreement, many people place emphasis on key terms such as price, services, or obligations while overlooking a critical clause —”time is of the essence.” This clause enforces strict adherence to deadlines, meaning that even what can appear to be minor or trivial delays can result in serious legal and financial consequences. 

The “time is of the essence” clause ensures that all deadlines are binding and must be met precisely as outlined in the contract. A failure to meet these deadlines, even by a brief period, may constitute a fundamental breach of contract, allowing the non-breaching party to terminate the agreement and/or pursue damages. Unlike typical contract deadlines, which may allow for some flexibility, this clause removes any such leeway unless both parties permit an extension, largely, in writing. 

This provision is often included in contractual agreements where timing is critical, such as real estate transactions, construction agreements, and business contracts. In real estate, for example, a missed closing date may result in the forfeiture of a deposit, incurring additional costs, or in more drastic cases, the termination of the agreement entirely. Similarly, in construction contracts, delays in project completion can lead to penalties or give rise to termination rights for one of the parties. 

The consequences of breaching a “time is of the essence” clause can be severe. The non-breaching party may terminate the agreement, retain any deposits or payments made, and claim damages as a result. In some cases, legal action for breach of contract may follow. While the clause sets firm deadlines, it can be waived if both parties explicitly agree to a delay or if one party accepts late performance without objection. However, to reinstate or restore the clause, the party relying on it must provide clear written notice that any and all future deadlines will be strictly enforced. 

To mitigate the risks associated with contracts that contain this clause, it is vital to treat all deadlines as non-negotiable. If a delay is anticipated, it is essential to request an extension well in advance to avoid breaching the contract. Any amendments to deadlines should always be documented in writing. Before entering into an agreement that includes this provision, seeking legal advice is advisable to ensure that all terms, including deadlines, are fully comprehended and that potential disputes are minimized. 

The “time is of the essence” clause is more than just boilerplate language — its implications are real and enforceable. By understanding its strict nature, parties can avoid costly legal and financial repercussions. Should a dispute arise due to missed deadlines, consulting a qualified legal professional will help clarify your rights and options. 

If you’re entering into a contract that includes a “time is of the essence” clause or dealing with the consequences of missed deadlines, speaking with an experienced lawyer can help you avoid unnecessary risks. Jonathan Dippolito is available to review your agreement, explain your obligations, and provide guidance tailored to your situation. To schedule a consultation, contact him at 289-220-3229 or email jonathan@durhamlawyer.ca. 

Notable Real Estate Law Decisions of 2024

Zhang v. Primont Homes (Caledon) Inc., 2024 ONCA 622 (CanLII)

Superior Court of Justice Decision

Facts

In February of 2017, the plaintiff Jun Dai signed an agreement of purchase and sale (“APS”) for a house (the “Property”) to be built by developer, Primont Homes (Caledon) Inc. in a new subdivision.[1] Mr. Dai intended to purchase the Property as an investment.

Prior to the purchase, one of the defendants and real estate agent, Yu Si, represented by way of words and actions to Mr. Dai that the Property was located at or near the intersection of Mayfield Road and Kennedy Road in Brampton. Two months later, the other plaintiff Yu Zhang joined Mr. Dai in the investment, and together they made payments totalling $120,000 as a deposit for the Property that was sold for $1,232,500.

The Property was set to close in March of 2019. In May of 2018, the plaintiffs drove by the intersection of Mayfield Road and Kennedy Road and to their surprise, there was no construction underway at that intersection. Afterwards, they discovered the Property that they agreed to in the APS was not located at the site as represented by the appellants, but rather three kilometres north, in Caledon.

It turned out that Ms. Si relied on the information incorrectly provided by her brokerage to advise her clients.

The Plaintiffs’ Position

The plaintiffs held the position that they should not be required to close on the Property because the location was misrepresented, and therefore their deposit of $120,000 should be returned to them. The plaintiffs also sought damages in the amount of, $600,000 which would have been the profit out of the subject Property that is now worth $1.8 million.

The Defendants’ Position

There was no misrepresentation. Rather, the plaintiffs did not purchase the Property due to new legislation that imposed a tax requirement on foreign buyers.

Findings of the Trial Judge

There was no dispute that an agreement existed between the parties. The trial judge found that the real estate agent and brokerage negligently misrepresented the location of a proposed development, which the buyers relied on and entered into an APS for a Property within the development. Ms. Si not only told the plaintiffs that the Property would be located in the Mayfield/Kennedy area, but she also physically accompanied them to that area and provided them with a document with an “X” marked in the vicinity of Mayfield/Kennedy to represent the location of the development.

With respect to the defendant’s argument that the plaintiffs did not purchase the property due to the new legislation that imposed a tax on foreign buyers, this legislation did not change the fact that Ms. Si still misrepresented the Property’s location.

The trial judge also ordered damages and costs from the defendants. The damages were in the amount of $120,000 (the down payment) in addition to pre-judgment interest as prescribed under the Courts of Justice Act.

The trial judge did not award the $600,000 for lost profits, holding that the plaintiffs had the opportunity to close and hold onto the property rather than opt out of the contract.

Ontario Court of Appeal

The defendants appealed to the Ontario Court of Appeal (“ONCA”), arguing that the trial judge erred in finding that they negligently misrepresented the property’s location and that the respondents were entitled to recover damages from them for this misrepresentation.[2] ONCA disagreed with the appellants and upheld the trial judge’s findings.

Key takeaways:

• Real estate agents can be sued and held liable for negligently misrepresenting the location of a proposed development or property.

• Negligent misrepresentation can be done by way of telling the clients the misinformation or showing them by way of a visit, diagrams, figures or documents.

• Ms. Si should have verified the information from her brokerage and done her own due diligence before advising her clients.

Smith v. Real Estate Council of Ontario, 2024 ONSC 3965 (CanLII)

Facts

In this case, real estate agent Darrah Smith (“Ms. Smith”) was found by the Discipline Panel of the Real Estate Council of Ontario (RECO) to have breached her professional Code of Ethics by including an inaccurate number for the property taxes and local improvement charge in a property listing.[3]

Ms. Smith was unsuccessful in her appeal to RECO’s Appeal Panel, therefore she sought a judicial review of the appeal decision.

In her application, a part of Ms. Smith’s grounds for judicial review included a claim that the Discipline Panel’s decision that the Agent breached the Code of Ethics by including inaccurate tax information was unreasonable considering Ms. Smith’s efforts to verify the property taxes and local improvement charge on the property. The application for judicial review was ultimately denied at the Superior Court of Justice, which found that both Discipline Panel and Appeal Panel decisions were reasonable.

The Code of Ethics under the former Real Estate and Business Brokers Act (“REBBA”) provided that realtors must do the below:

• “treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity”;
• “promote and protect the best interests” of their clients;
• “provide conscientious service” and “demonstrate reasonable skill, judgment and competence”; and
• Finally, realtors must use their “best efforts to prevent error, misrepresentation, fraud or any unethical practice.”[4]

Analysis

The court noted that the Discipline Panel made five important findings:

1. “Realtors should only use a reliable source such a tax bill as the basis for statements made in listings about the taxes.”
2. “Realtors should not use their own calculations as the basis for determining the taxes.”
3. “Realtors should not put unverified information about taxes and local improvement charges in listings.”
4. “If a realtor cannot confirm the tax figures, they should make it clear in the public information that the numbers presented are an estimate.”
5. “Disclaimers in the ‘Broker Notes’, which are not visible to the public, are not sufficient to relieve the selling agent from the obligation to confirm the figures in the listing.”[5]

The Discipline Panel acknowledged that realtors may not always have access to or the ability to obtain municipal property tax bills due to municipalities often only releasing the local improvement charge information to property owners.[6] Regardless, this is no excuse for providing inaccurate information in a listing.

Ms. Smith explained that she never obtained the tax bill from the owners. Instead, she used two databases and her own calculations to arrive to an estimate that was put on the listing. Ms. Smith further explained that she overestimated the property taxes so that “any error would favour the purchaser.”[7]

In the court’s analysis, Justice Davies explained that purchasers and mortgage brokers rely on the information in listings to secure financing and as such, it is crucial that the tax information be accurate.[8]

Held:

Ms. Smith ought to have put accurate tax and local improvement charge information in the listing.[9] In the alternative, she had to clearly communicate to the public and other agents and brokers that the information was not verified and that it was merely an estimate. Without a clear disclaimer, real estate agents could run the risk of misleading those who rely on the information and be held liable for violating the Code of Ethics.

Ms. Smith was ordered to pay $4,000 (inclusive of HST and disbursements) to RECO.[10]

Key Takeaways:

• Real estate agents are held strictly to the requirements of the Code of Ethics. Here is the updated version under the new Trust in Real Estate Services Act (“TRESA”).
• Do not cut corners and do your due diligence. Never use your own calculations as a basis for calculating taxes and other figures; spend the extra time to seek out and rely on the correct sources, documents and experts.
• Be honest. In any advertisements where there is an estimate, you must direct the readers’ attention to a disclaimer that those figures are mere estimates and are subject to and/or likely to change.

Sun v Mani,2024 CanLII 35486 (ON SCSM)

Heard at the Oshawa Small Claims Court

Facts

This was a dispute between buyers and a broker over commission fees.[11] The defendants first retained real-estate broker, Sean Sun, to assist them in buying a new home for their family. The defendants agreed to and signed the “Buyer Representation Agreement” (“BRA”) with Mr. Sun, also known as OREA Form 300.

The defendants claimed they were unsatisfied with Mr. Sun and therefore sought a new broker. The new broker with whom the defendants also signed a BRA managed to help them make a successful offer on a home.

The initial broker, Mr. Sun, launched a lawsuit against the defendants because he was still owed the 2.5% commission under their BRA, citing breach of contract.

Deputy Judge Dennis Ong – “A  contract is a contract” 

Deputy Judge Dennis Ong held that the BRA was a legally enforceable contract and both parties were bound by its terms.[12] The defendants breached the contract by refusing to pay Mr. Sun his commission, therefore Mr. Sun’s claim was granted with costs.

There are a host of cases that have reached the courts and especially the Small Claims Court surrounding commission payments.[13] The court in this case explained that there is a public policy interest in ensuring that contracts are upheld.

The Modern Age of Commercial Dealings and Claims of Coercion

Deputy Judge Dennis Ong went on to explain that Mr. Sun did not coerce the defendants into signing the BRA:

“Caselaw in this court regarding onerous and time-pressure situations (i.e. clients being pressured to sign BRA’s while in brokers’ vehicles, etc.) become irrelevant to this analysis and are distinguishable.  The Defendants were invited to join a Zoom meeting to sign a document by way of DocuSign. If the Defendants did not wish to sign the Buyer Representation Agreement, they simply could have not clicked their mouse button on the signatory and initial boxes. The Defendants also could have simply exited the Zoom call by closing the window. There was no aspect of physical or implied coercion of any sort.  This is perhaps a hallmark of the modern age of commercial dealings and is relevant to this specific contractual formation.”[14]

Key Takeaways:

• Real estate agents and brokers are entitled to enforce their contractual rights.
  • A contract does not simply disappear or become unenforceable due to a party’s decision to walk away and seek services elsewhere.
  • A contract must be effectively terminated for parties to be relieved of their obligations contained therein.
  • In the event of a dispute, there are defences available under contract law depending on the facts of the case. For instance, a party could claim that the contract was never enforceable to begin with for reasons such as fraud.
• If there is a commission amount owing to you below $35,000, that falls under the jurisdiction of the Small Claims Court, you can initiate an action there.
• For amounts over $35,000, you can commence an action in the Superior Court of Justice.

Graf v. Periyathamby, 2024 ONSC 1062

Facts

The plaintiff, Gary Graf, owned and operated a restaurant and hoped to purchase and run a second restaurant.[15] Mr. Graf agreed to purchase a restaurant called “Oscar’s” located in Kitchener. To fund that purchase, Mr. Graf and his wife, Valentina Graf, listed two income properties for sale, one in Waterloo and the other one in Kitchener.

The Grafs entered into an APS for both properties. Here are some details of the transactions:

• Waterloo Property – the purchaser was defendant Easwara Periyathamby.
• Kitchener Property – the purchaser was defendant Chitra Subramaniam and later amended to be Ramakrishnan Tharmalingam.

Waran Nathans was understood by the plaintiffs to be the owner of Oscar’s, as well as a real estate agent. Mr. Nathans was also the broker of record at Via Realty Inc. (“Via Realty”). Mr. Nathans acted as the real estate agent for both the plaintiffs and the defendant purchasers for the two investment properties.

The purchasers eventually backed out of the APS and were not able to close the transactions. After some delay, the Grafs were able to sell the income properties, one of which was sold for more than the original APS price and the other one for less.[16] On September 30, 2016, default judgment was granted against Via Realty in the amount of the deposits for each of the investment properties.[17]

Mr. Graf was not able to close on the Oscar’s restaurant purchase because of the delay in selling his income properties. Furthermore, it was not until the Grafs sold their income properties and commenced this action that they learned Mr. Nathans was not actually the owner of Oscar’s.

It also turned out that all defendants were connected to each other prior to the transactions and that one of the purchasers was the true owner of Oscar’s:

“…Mr. Periyathamby and Ms. Subramaniam (and Mr. Tharmalingam) were connected to each other through the defendant Mahesan Subramaniam, that Chitra Subramaniam was the wife of Mahesan Subramaniam, that Mr. Subramaniam was the true owner of Oscar’s, that Mr. Periyathamby and Ms. Subramaniam were trustees or mere representatives or nominees of Mr. Subramaniam on the failed purchases, and that Mr. Nathans and Mr. Subramaniam were in business together at Via Realty.”[18]

The Defendants’ Position

The true owner of Oscar’s, Mr. Subramaniam, alleged there was a verbal agreement that had two components, as set out below:

“The first component was that Mr. Subramaniam would arrange for two buyers for the plaintiffs’ two income properties at the reduced prices … if Mr. Graf agreed to purchase Oscar’s.  The second component was that if either of the income property deals did not close for any reason, all parties would sign mutual releases and return the deposits made without deduction of any kind.”[19]

The defendants also alleged that the plaintiffs negligently and fraudulently misrepresented the nature of their income properties—they thought the Kitchener Property would be a single-family residence.

The defendants also argued that “the price at which the plaintiffs agreed to sell the Kitchener property to Mr. Periyathamby was artificially high and did not properly reflect the market value of the property. Therefore, in the absence of expert evidence of the market value of the property, the plaintiffs have not shown that they have suffered any actual damages.”[20]

Held:

The court held that there was no verbal agreement to the effect that the plaintiffs would have to return the deposits to the defendants. Furthermore, the plaintiffs did not make a fraudulent or negligent misrepresentation of their income properties.

Mr. Nathans, who was acting for both sellers and purchasers and who was at the same time a very close business associate of Mr. Subramaniam, knew of the nature of the properties, including the Kitchener Property.[21] Likewise, Mr. Nathans had personally inspected the Kitchener Property and had copies of the rental agreements to show that the property was a triplex used by more than one family.[22] Additionally, Mr. Nathans was the one who created the listings where he characterized the Kitchener Property as a “Residential-Duplex” and an “investor’s dream property” with further details of the interior. Also, had the purchasers inspected the property as permitted by the APS, it would have been made very clear to them that it was not a single-family residence. Moreover, the parties took the opportunity to amend the APS and agree to a price that reflected the market at that time.[23]

“Having freely entered into the contract, and having failed to honour it, the defendants Mr. Periyathamby and Mr. Subramaniam are liable for damages flowing from that failure and assumed the risk that the market would fall between the date of the breach and the date that plaintiffs were able to sell the property to a new buyer… The damages are calculated as the difference between the APS price for the Kitchener property and the price at which it ultimately sold to a new buyer plus any lost transaction costs …The difference in prices in this case is $73,500… the damages on the Waterloo transaction are $76,284.60.”[24]

Key Takeaways:

• Maintain transparency, full disclosure and written agreements.
  • The parties must know who they are dealing with. Who are the sellers? Who are the purchasers?
  • Ensure all agreements and amendments are in writing. Avoid relying on verbal agreements.
• Be cautious of conducting double-ended deals (multiple representation).
  • Your clients could be subject to serious conflict-of-interest issues, especially where there are prior established business relationships that could disadvantage the other purchaser(s)/seller(s).
  • A representative in the above scenario is no longer able to uphold the client’s best interest, in addition to providing objective and impartial treatment.
  • Brokers and real estate agents could be subject to disciplinary hearings and substantial fines for improper conduct.
    • From RECO: “Multiple representation is not permitted unless each of the clients involved agrees. [Clients] should seek independent professional advice (for example, from [a] real estate lawyer) before proceeding.”

If you are a real estate agent or broker and you have questions regarding your rights and obligations, please contact our experienced Real Estate Lawyer and Partner, Paria Rad, at Woitzik Polsinelli LLP at 905-668-4486, ext. 230 or paria@durhamlawyer.ca.

This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.

This blog was co-authored by Articling Student, Sanaz Sakhapour.

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[1] Zhang v. Primont Homes Inc., 2023 ONSC 4036 (CanLII).

[2] Zhang v. Primont Homes (Caledon) Inc., 2024 ONCA 622 (CanLII).

[3] Smith v. Real Estate Council of Ontario, 2024 ONSC 3965 (CanLII).

[4] Ibid at para 35.

[5] Ibid at para 36.

[6] Ibid at para 38.

[7] Ibid at para 42.

[8] Ibid at para 48.

[9] Ibid at para 49.

[10] Ibid at para 54.

[11] Sun v Mani, 2024 CanLII 35486 (ON SCSM).

[12] Ibid at para 4.

[13] Ibid at para 26.

[14] Ibid at para 32.

[15] Graf v. Periyathamby, 2024 ONSC 1062 (CanLII).

[16] Ibid at para 2.

[17] Ibid at para 3.

[18] Ibid at para 6.

[19] Ibid at para 74.

[20] Ibid at para 87.

[21] Ibid at para 72.

[22] Ibid at para 71.

[23] Ibid at para 88.

[24] Ibid at paras 89 and 90.

In 2023, the Canada Mortgage and Housing Corporation (“CMHC”) estimated that 3.5 million additional housing units needed to be built to reach the target levels of affordability last seen in 2004. However, as of August 2024, the CMHC estimated that Canada’s current rate of homebuilding was 248,480 housing starts per year. It is undeniable that Canada is currently experiencing a housing crisis – both in terms of the number of homes available and the affordability of those homes. The only remaining question is: how do we solve it?

On September 16, 2024, Minister of Finance, Chrystia Freeland, announced the federal government’s most recent attempt to address the housing crisis: reform the mortgage rules.

What Changed?

As of December 15, 2024, the following measures will be put in place:

1. Increasing the price cap for insured mortgages from $1 million to $1.5 million.

An insured mortgage is a mortgage that requires mortgage loan insurance, or CMHC insurance, due to the low amount of equity that the borrower has in their home. A borrower must have an insured mortgage if their down payment represents less than twenty percent of the purchase price of their home. Prior to this change, any house that cost more than $1 million was not eligible for mortgage loan insurance; therefore, homes over $1 million required a down payment equal to twenty percent of the purchase price of the home. Now that the government has raised the price cap to $1.5 million, buyers purchasing homes that cost less than $1.5 million qualify for an insured mortgage for up to ninety-five percent of the purchase price of their home.   

This marks the first increase to the price cap since 2012 and is intended to better reflect current housing market realities. For instance, in Toronto, the average price of a house in 2012 was $497,298; in comparison, the average price of a house in Toronto in 2023 was $1,134,781. While the Toronto real estate market may be an extreme example, this exponential increase in the cost of homes has occurred in many, if not all, housing markets across Canada.

• Expanding eligibility for 30-year mortgage amortizations for all first-time homebuyers to all buyers of new builds.

In Canada, mortgages typically have a 25-year mortgage amortization period. An amortization period is the number of years that it will take to pay off your mortgage; a longer amortization period means that you will have longer to pay off your home and, consequently, that your monthly payments will be lower. 

As of August 1, 2024, the federal government announced that lenders could offer 30-year amortization periods for first-time homebuyers who have insured mortgages and are purchasing new builds. As of December 15, 2024, this allowance will be expanded to include all first-time homebuyers and all purchasers of new builds. By allowing all purchasers of newly built homes to qualify for a 30-year amortization period, this measure is also expected to incentivize new housing construction and address housing shortages.  

These reforms are intended to build on other measures recently rolled out by the federal government, including:

• Allowing insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test increases mortgage competition and enables Canadians with insured mortgages more flexibility to switch to a cheaper deal.
• Launching the Tax-Free First Home Savings Account, which allows Canadians to contribute up to $8,000 per year, up to a lifetime limit of $40,000, towards their first down payment without paying tax on deposits or withdrawals to the account.

What Does This Mean for Me?

Through this mandate, Minister Freeland intends to help younger generations, particularly Millennials and Gen Z, obtain home ownership.

By increasing the price cap for insured mortgages to $1.5 million, purchasers are now able to buy more expensive homes with smaller down payments. For instance, prior to the amendment, to qualify for a mortgage to purchase a $1.4 million home, you needed a down payment equivalent to twenty percent of the purchase price, or $280,000. Now, you can qualify for an insured mortgage for a $1.4 million home with a down payment of as little as five percent of the purchase price, or $70,000.

Likewise, by allowing for 30-year amortization periods, buyers can stretch their mortgage payments out for another five years, thereby allowing them to take on lower monthly payments. Taking the above example, if you purchased a $1.4 million home with a twenty percent down payment and had a mortgage with a 25-year amortization period, your monthly payments would be $3,733, without interest. For that same home with a mortgage with a 30-year amortization period, the monthly payment would go down to $3,111, without interest. Both of these measures could mean the difference between renting and being able to afford a home for many Canadians.

Are There Any Downsides?

Although this policy has the potential to make homeownership more accessible, it is not without its criticisms:

• Limited Impact. The increase to the price cap of insured mortgages only impacts people who are purchasing homes worth over $1 million. While the average cost of a home in Toronto is over $1 million, this is not the case for many smaller cities and towns across Canada and this price point remains out of reach to most Canadians.
• Increased Interest. A longer amortization period would result in lower monthly mortgage payments; however, buyers would also be left paying interest on their mortgages for longer, increasing the overall cost of the home. Longer mortgage amortization periods also mean that Canadians purchasing homes in their thirties or forties may be left paying off mortgages well into retirement in their sixties and seventies when they have a significantly lower income.
• Counter-productive. While these relaxing the rules on mortgages may make owning a home more accessible, it may also stimulate the demand for houses and exacerbate the supply issues already plaguing the country.

It is far too soon to know the ultimate impact and effect of these changes on the Canadian residential real estate market, and it is clear that no one measure can adequately address the housing crisis. However, Canadians can only hope that these new measures are a step in the right direction and fulfill at least some of their promises.   

If you would like more information regarding these recent changes to mortgage rules, and how they may affect the sale or purchase of your home, please contact experienced Real Estate Lawyer, Paria Rad, at Woitzik Polsinelli LLP at 905-668-4486, ext. 230 or paria@durhamlawyer.ca.

This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.

This blog was co-authored by Articling Student, Leslie Haddock.

Real Estate transactions can be a stressful process for both purchasers and sellers of real property. One issue that can be easily overlooked during a real estate transaction that has serious ramifications is if a seller has an Open Building permit on their property.

What is a Building Permit?

A building permit is required when you wish to construct, renovate, demolish or change the use of a building. Building permits are issued by the body responsible for enforcing Ontario’s Building Code in your area, which is typically the municipality where the property is located. Some examples of the type of work that requires a building permit can be found here.

Building permits are issued to ensure that the project complies with the building code, local zoning bylaws, planning controls on buildings and other applicable legislation including conservation authority and certain requirements under the Environmental Protection Act.

Once a Building Permit is obtained, the proposed work can begin. The Building Code sets out stages of construction when different types of buildings must undergo mandatory inspections. It is the responsibility of the permit holder to contact the municipality for any and all inspections. When the work is completed, a final inspection will be conducted to ensure that the work was completed in accordance with the Building Code Act. This final inspection closes the building permit. If the project is not completed and there has been no final inspection, the building permit remains open.

Judicial Interpretation

If an open building permit exists on a property during a real estate transaction, there may be significant issues if the permit is not closed by the completion date of the sale. From the perspective of a purchaser, it is important that any property you acquire has good title. Good title is one which is free from litigation, palpable defects and grave doubts and couples a certainty of peaceful possession with a certainty that no flaw will appear to disturb its market value (Holmes v Graham).

Open building permits, while not specifically a title issue, can be considered a title issue if the requisition included in the Agreement of Purchase and Sale goes to the “root of title”.

Thomas v. Carreno provides significant insight into how the court approaches the issue of open building permits. In this case, the Purchaser’s solicitor discovered an open building permit roughly 2-3 weeks before closing. A requisition letter was sent advising the Vendor’s solicitor that the permit had to be signed off before closing. The requisition was not satisfied, and the Purchaser refused to close. The Vendors argued that they were able to close as they secured title insurance and were willing to have a substantial holdback while the permit remained outstanding.  The purchaser instead demanded a return of the deposit and $3,100 in wasted expenses. Litigation resulted as the Vendor claimed that they were willing to close. Justice Lederman found that the encumbrances associated with open building permits can be considered a cloud on title. However, he also held that the actions taken by the Vendor to counter this issue by obtaining title insurance was sufficient to have the deal close.

Another significant case on the issue of open building permits is 1854822 Ontario Ltd. v. Martins Estate. In this case the Vendor was completing work on the Garage of the Property. The purchaser was fully aware of the work being done but not of the open building permit. A requisition was made with regard to the garage on the subject property by the Purchaser. The Vendor argued that it was not a valid requisition on the grounds that the open building permit was a minor defect. Justice Wilson in this case held that the requisition was valid as the building permit went to the root of title. This decision was largely grounded in the facts of the case as the open building permit presented a risk of future litigation and the purchaser’s right to enjoyment of the property.  

More recently in MacDonald v Chicago Title Insurance Company of Canada, Justice Hourigan interpreted a title insurance policy which provided coverage related to work orders, defects, liens and so on. The issue facing the court was whether the defects faced by the property owner had rendered the title unmarketable in accordance with the title insurance policy. Justice Hourigan held that the open building permit did make the title unmarketable within the meaning of the title insurance policy. 

Conclusion

The Case Law signifies the court’s willingness to accept the serious implications associated with open building permits. The court takes a holistic approach in assessing the factual scenario and whether the open building permit will significantly impact the purchaser’s title rights.

As a purchaser buying property, it is important to have your solicitors check to make sure there are no outstanding building permits on the property and if there are to have a requisition made that the permits be closed. Purchasers must be wary of any construction done on the property as the construction may have required a permit, but no permit was obtained. This further complicates the issue as it is uncertain if the changes were made in accordance with the Building Code Act.

If you would like more information regarding the purchase and sale of real estate or would like legal advice to ensure you are in compliance with all building permits, please contact experienced Real Estate lawyer Paria Rad, Woitzik Polsinelli LLP at 905-668-4486 ext. 230 or paria@durhamlawyer.ca.

This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs

This blog was co-authored by Summer Law Student, Jason Corry.

Looking at floor plans and picking custom finishes when purchasing a brand-new property is an exciting time. However, the size and complexity of an Agreement of Purchase and Sale for a pre-construction property, commonly referred to as a “new build”, can be daunting and intimidating for prospective purchasers. Prior to entering into a binding Agreement of Purchase and Sale for a new build, it is of the utmost importance that you understand exactly what you are signing, as the majority of the clauses in the agreement are drafted to be advantageous for the builder.

Below are 5 items to watch out for when executing an Agreement of Purchase and Sale with a builder.

(1) Adjustments on Closing

When you enter into a pre-construction agreement, there will often be provisions relating to “adjustments”. These adjustments are costs that are in addition to the purchase and are payable to the builder on the closing date. These additional charges may contain, but are not limited to, the following:

• Tarion Enrollment Fee
• Cost associated with utility meters and installation
• Realty taxes
• Levies and Development Charges (charges imposed by the Municipality)
• Miscellaneous Builder Fees (i.e. builder’s mortgage discharge fee)

If left uncapped, adjustments on closing can exceed tens of thousands of dollars. Note that the exact amount of adjustments payable will not be known until shortly before closing. Your lawyer may be able to negotiate reasonable caps and deletions to these adjustments. This can provide clarity for purchasers when budgeting for the final closing date.

(2) Restrictions Relating to Assignments and Leasing

If you intend on assigning an Agreement of Purchase and Sale or leasing the unit during a potential occupancy period, you should be mindful of any restrictions contained in the agreement. Builders will often incorporate a provision stating that all assignments, leases, and sales are prohibited until after the final closing date and that you are prohibited from advertising the unit on any platform. For example, a clause of such nature would prohibit you from advertising or listing on Multiple Listing Services (MLS). These provisions also usually contain a clause stating that if the vendor consents to a request for an assignment or lease, you will be required to pay the vendor’s “administrative fee”, in addition to their lawyer’s legal cost. Note that these assignment and lawyer fees can exceed $10,000.00.

(3) Harmonized Sale Tax (HST)

When purchasing a newly constructed property, the transaction will be subject to HST (13% of the purchase price). Some builders will incorporate the HST into the purchase price, while others will make it payable in addition to the purchase price. If HST is included in the purchase price, the builder will usually insert a provision stating that you will qualify for all HST rebates and that you agree to assign the benefit of same to the builder. To qualify for the HST rebates, you will need to occupy the property as your principal residence. If you do not meet the requirements for these HST rebates, you may have to pay the equivalent of same on closing. Note that this amount can be approximately $24,000.00.

(4) Tarion Statement of Critical Dates

When entering in to a pre-construction agreement, it is important to be mindful of the Tarion Statement of Critical Dates and the vendor’s ability to extend such dates with proper notice. The Tarion Statement of Critical Dates provides purchasers with tentative closing dates, in addition to the “Purchaser’s Termination Period”.1

In certain circumstances, you may be entitled to delayed occupancy compensation, however, it is important to note that the maximum delayed occupancy provided under Tarion is $7,500.00 ($150.00 per day up to this amount). Therefore, if a delay exceeds 50 days, you will not be entitled to further compensation under Tarion’s delayed occupancy regime.2

(5) Occupancy Fees (if applicable)

Some pre-construction properties may be subject to an occupancy period (i.e. an interim or occupancy closing). During this period, you will effectively rent and occupy the dwelling from the builder until the final closing can take place. You will often be required to pay a monthly occupancy fee, which is usually comprised of interest on the unpaid balance due to the builder, condominium fees (if applicable), and property taxes. Outside of the occupancy fee, you will often usually be responsible for the payment of all utilities. It is important to note that these monthly occupancy fees are not credited towards the purchase price.

Importance of a Real Estate Lawyer’s Review

Prior to finalizing a pre-construction agreement with a builder, it is imperative to have a real estate lawyer review your agreement. Your real estate lawyer will be able to highlight any concerning provisions and may be able to negotiate favourable amendments with the builder’s lawyer on your behalf.

If you are looking for a lawyer to review your pre-construction agreement or act on your behalf in a real estate transaction, please do not hesitate to contact Jason Lane, lawyer at Woitzik Polsinelli LLP at 289-220-3241 or at jason@durhamlawyer.ca.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”

This blog was co-authored by Articling Student, Jaimin Panesar.

Before placing an offer on a property, it is important to understand the principle of “caveat emptor”, which is also known as “buyer beware”. While purchasing a new home can be an exciting time, it is crucial to conduct your own due diligence in seeking out any potential issues prior to firming up your transaction. A quick walk-through of the property may not reveal certain defects that could have been discovered through a reasonable inspection of the premises.

The Principle of “Caveat Emptor” in relation to Patent and Latent Defects

The principle of caveat emptor is one of the governing principles in determining who is financially responsible for defects that are discovered after closing. Essentially, this principle states that potential purchasers are to buy a property at their own risk and if they wish to investigate about potential defects, they are to satisfy themselves in relation to same. Defects that are discovered by the purchaser after closing are thus usually their own responsibility.

The principle of caveat emptor applies to patent defects. Patent defects are defined as defects that could have been discovered through ordinary diligence or a reasonable inspection. Examples may include holes in the wall, broken windows, damaged floors etc. They are effectively defects that are either visible to the naked eye or can be reasonably discovered. It is important to note that a vendor has no obligation to disclose of any patent defects, however, they may not knowingly conceal or hide same.

Alternatively, latent defects are defects that could not have been discovered by ordinary due diligence or a reasonable inspection of the property. One key difference between the two types of defects is that vendors have a duty to disclose to purchasers of any latent defects that they have knowledge of. While the principle of caveat emptor also applies to latent defects as well, if the vendor fails to disclose of a latent defect that they had knowledge of, they will be liable for same.

It is important to note that if a purchaser has knowledge of a defect and fails to raise same prior to closing, they will likely have no claim for any damages relating to the defect.

Potential Issues that may Arise

Not all post-closing issues can be classified as either patent or latent defect, as some may be related to contractual issues or warranties. The following is a non-exhaustive list of common issues that purchasers experience past closing:

• Property is left in a messy state, with the vendor’s unwanted personal items left behind
• There is damage/leaks/defects to various parts of the property (i.e patent or latent defects)
• The chattels included in the agreement are not operating properly
• The pool or hot tub is not in working order
• The septic or well is not in working order
• The vendor has failed to provide vacant possession
• There are arrears in taxes for the property
• Equipment was not disclosed as a rental item in the Agreement of Purchase and Sale (i.e a hot water tank)

Addressing Defects Throughout the Transaction

It is best to address potential defects and issues prior to firming up your Agreement of Purchase and Sale. The most common safeguard for purchasers is to require the transaction to be conditional upon an inspection from a certified inspector. Professional inspectors are most suitable for identifying any defects with the property and will produce a report listing same. Another common safeguard available to purchasers is to have the vendor agree to certain written warranties and representations that will be included in the Agreement of Purchase and Sale (often in Schedule A). For rural and cottage properties, it is best to consult with a real estate lawyer prior to signing an Agreement of Purchase and Sale, as it may be advisable to insert conditions in relation to a potential well and/or septic system.

If any issues are to arise or be discovered after closing, it is best to contact your realtor and/or lawyer so that the other side can be put on notice. Your realtor or lawyer may try to negotiate some form of compensation on your behalf, without the need to immediately litigate the matter. Note that post-closing issues are often outside of retainer agreements with real estate lawyers, so they may be unwilling or unable to negotiate on your behalf.

If your realtor or lawyer is unable to successfully negotiate with the vendor or their counsel, your next recourse may be to file a claim with the Small Claims Court, or, if the amount of your claim is greater than $35,000.00, the Superior Court of Justice. If you elect to litigate any post-closing issues, you may wish to speak with a litigation lawyer.

Importance of Making Your Agreement Conditional on Your Lawyer’s Review

Making your Agreement of Purchase and Sale conditional on your lawyer’s review can be extremely beneficial in the future. A competent real estate lawyer will be able to recommend, draft, and insert certain provisions that specifically relate to your transaction. These provisions may be able to protect you from defects that are discovered in the future. Moreover, after your agreement becomes firm, your lawyer may be able to request an abatement of the purchase price in relation to defects raised prior to closing (i.e. defects discovered through your last walk-through of the property).

If you are looking for a lawyer to act on your behalf in a real estate transaction or have any questions, please do not hesitate to contact Jonathan Dippolito, lawyer at Woitzik Polsinelli LLP at 905-668-4486 ext. 229 or at jonathan@durhamlawyer.ca.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”

This blog was co-authored by Articling Student, Jaimin Panesar.