Can a size misdescription and outstanding building permit be a dealbreaker for Buyers?
If one party turns to the courts to try to determine whether an agreement of purchase and sale (the "APS"), may be considered terminated, they examine many factors. While it is commonplace to assume a misdescription of the size of the property or a discovered building renovation would entitle a Buyer to terminate an APS, this depends on the particular facts of the case. In today’s blog post, we take a look at the case of Lamba v. Mitchell, 2021 ONSC 1612 and the prudence required of Buyers before making an offer to purchase a property.
Lamba v. Mitchell
In this case, on July 7 2020, the Sellers listed their residential bungalow for sale through the Multiple Listing Service (the “MLS”). The MLS listing represented the interior of the house to be approximately 2500-3000 square feet. This was an overstatement of the house size as the brochure for the property correctly stated the dimensions to be 2155 square feet at the main level and 665 square feet at the lower level.
Interestingly, the Buyer was an experienced realtor who, on his account, had closed over 2000 property transactions collectively worth over $1 billion. During the viewing of the house, the Buyers, that is, the experienced realtor and his wife, liked the house and made an offer to purchase the house for $1.2 million, as there were other offers in respect of the property. The Buyers paid a $20,000 deposit and the APS slated September 15, 2020 as the closing date with time being of essence. Subsequently, the Buyers discovered through documents, the difference in the home size as 2,155 square feet instead of 2,500-3000 as they thought. They claimed that this was a shocking discovery as they did not see the correctly stated brochure on display during their viewings.
The Buyers also learned of a prior renovation to the home that almost doubled its original size. Although the Buyers did not deliver a letter of requisition, they claimed that the Seller agreed to produce a copy of the building permit for the renovation but never did so.
The Buyers, therefore, sought to terminate the APS on two grounds. First, the Buyers claimed they were unaware of the home’s accurate area before agreeing to buy the property. Secondly, they sought to rescind the APS because of the Seller’s inability to produce a building permit for the prior extensive renovations.
It may come as a shock to most Buyers that the Court, per Justice Michael T. Doi, on March 31 2021, granted judgment in favor of the Sellers on both grounds. The Court was of the view that although the MLS incorrectly stated the home’s area, this did not amount to a misrepresentation that the Buyers relied on to purchase the house.
Restating the principles laid in Issa v. Wilson, 2020 ONCA 756 and Zhang v. Lin, 2020 ONSC 6559, the Court affirmed that a material misrepresentation may be invoked to set aside an agreement of purchase and sale. The Court, however, held that while the discrepancy in this present case was not insignificant, it did not constitute a material misrepresentation that would have impacted the Buyers’ decision to enter into the APS.
In regard to the second issue, the Court also held that the Buyers could not terminate the APS because they did not requisition a valid objection to title in respect of the building permit. The Court was of the view that the Buyers’ request for the Sellers to produce a permit for the renovations did not amount to a valid objection to title, citing the cases of Stykolt v. Maynard, 1942 CanLII 95 (ON SC), 567 College Street Inc. v. 2329005 Ontario Inc., 2019 ONSC 7346 at para 17; and Karami v. Kovari, 2019 ONSC 637 at para 72; amongst others.
It was therefore held that the Buyers breached the APS by not closing the transaction and that the Seller was entitled to retain the $20,000 deposit.
How can Buyers reduce their risks?
A good step for Buyers to take to reduce their risks when entering into the purchase agreement is to try to make sure of the actual size of the property before making an offer of purchase, as they may be unable to terminate an APS once they've agreed to purchase what they've seen themselves. Secondly, Buyers should not just make a simple request for information in respect of permits as this would not amount to a valid requisition on title. Buyers should investigate by themselves by making a request to the relevant municipality for a record of any open or previously delivered building permits on renovations to the property.
At Northview Law, we would love to discuss any questions you have about protecting your interests in any real estate transaction. You can book a free consultation with Northview Law on this link, or contact us at 416-639-7639. We look forward to hearing from you soon.