November 20, 2023 | Danny McMullen and Ema Marcheska
The Ontario Superior Court of Justice in two recent commercial real estate dispute cases ruled that specific performance was warranted, going against what was seen as the status quo that this remedy was to only be used in “extraordinary circumstances”. In both 2730453 Ont Inc. v. 2380673 Ont Inc. and Bellwoods Brewery Inc. v. 1896841 Ontario Limited, the remedy of specific performance was granted even though the facts of the cases varied heavily.
What happened in the cases?
2730453 Ontario Inc.
Plaintiff and Defendant entered negotiations for the sale of the defendant’s land. They had come to a mutual agreement and had sent closing documents and the purchase price but never signed an Agreement of Purchase and Sale. The Defendant refused to close the transaction and the Plaintiff brought forward a claim against the defendant.
The court stated that the doctrine of part performance applied in this case and that the verbal agreement was enough to be enforceable. Focusing on the remedy for the case, the court turned to the three factors case from Lucas v. 1858793 Ontario Inc. (Howard Park) (Lucas). The Court will look at (i) the nature of the property involved, (ii) the related question of the adequacy of damages as a remedy; and (iii) the behaviour of the parties, having regard to the equitable nature of remedy. Upon accessing this the court found that because the property was being bought outside of an investment but for the plaintiff to fold it into their own land, there was more than just a financial incentive. Therefore, the court determined that specific performance was better suited to the case.
Bellwoods was a very different case than 2730453 Ontario Inc. Here it was about breaches of the commercial lease agreement, where there was a 20-year lease agreement signed between the Lessor( Defendant) and the Lessee (Plaintiff). Despite the agreement, the Lessee was never able to occupy the property because the Lessor never left the property. The Lessor as well distributed the business of the Lessee and had other companies come in and conduct events in the glass box on the property, which was included in the Lease. The Plaintiff then brought forward a claim for specific performance seeking to remove the Lessor from the Leased Property for the time of the Lease.
The court looking at the factors in Lucas, focused on the uniqueness of the property including the size and structure of the glass box, the space of the Leased premises combined with its proximity to the Plaintiff’s cliental, to ultimately conclude that specific performance in continuing the Lease and ordering the Lessor to vacate the property was the most appropriate remedy. Additionally, the court also awarded damages to the Plaintiff for the delay in the operations of the business.
What was driving the case?
The court in both cases cited Dhatt v. Beer, that “it is inaccurate to describe specific performance as an extraordinary remedy.” Focusing on the circumstances of the case and specifically the specific performance test set out in Lucas v. 1858793 Ontario Inc. where the Court focused on:
(i) the nature of the property involved
(ii) the related question of the adequacy of damages as a remedy; and
(iii) the behaviour of the parties, having regard to the equitable nature of the remedy.
Ultimately to conclude both cases specific performance is the better-suited remedy.
What does this mean for future real estate disputes?
Good news for some, bad news for others. This could mean that for future real estate disputes that specific performance could be more readily available as a remedy in the disputes. This does not mean that damages are to be replaced as a remedy, but they might not be always the default anymore. Damages might also be considered as additional remedies to specific performance, as was the case in Bellwoods, where the court awarded specific performance and $1.59 million for the breach of the lease and $4.52 million for the delay in operations.
As such this increased possibility should be considered when entering into commercial real estate transaction agreements, and the risks associated with it should be taken into account.
Here at Northview Law, our lawyers are ready to help ensure that your best interests are represented in all commercial real estate transactions. For more information feel free to contact our office.