In a recent Ontario Court of Appeal decision, the court reiterated the principle that spouses may not be granted a right of first refusal in a matrimonial home.
A right of first refusal in real estate is a mechanism that gives a party the right to be the first allowed to purchase a particular property if it is offered for sale.
What Happened?
The husband and wife separated and went to trial to resolve the ensuing financial issues. After a four-day trial, the trial judge ordered the husband to pay the wife an equalization payment of $226,670.
Additionally, the trial judge ordered that, after a fair market value assessment, the husband had the “right to conclude the purchase” of the wife’s interest in the jointly-owned matrimonial home within 30 days, and to obtain the release of the wife from her obligations under the existing first mortgage registered against the matrimonial home.
Parties’ Positions
The wife appealed and asked the Court of Appeal to vary the trial judge’s order to omit the husband’s right to conclude the purchase of the matrimonial home. She sought the sale of the matrimonial home and the division of its net proceeds.
The husband contested the appeal, first, because he argued that the appeal should instead be heard by the Divisional Court and that it was on the trial judge to explain his order. Also, the husband wanted to purchase the wife’s interest in the matrimonial home. Finally, he stated that he had been required to live in a trailer while the matrimonial home sat vacant as the wife was living with her mother; the husband sought compensation for his resulting expenses and hardship.
Court of Appeal Decision
After dismissing the husband’s procedural objections, the court stated that the case raised a single issue: the arrangements for selling the matrimonial home.
The court explained that a right of first refusal is a substantive right that has economic value. It cited previous case law which has established that, absent consent between the parties, one spouse does not have a special right to purchase the matrimonial home and that once the matrimonial home is ordered to be sold, each spouse is entitled to receive fair market value for his or her interest in it. In the cited 1992 case, the Ontario Court of Appeal had previously stated:
“A right of first refusal will most often work to discourage other interested buyers. If a spouse is granted a right of first refusal, the effect of it is to remove that spouse from the competitive market for the matrimonial home. The existence of a right of first refusal distorts the market, because it provides a benefit to one party, which eliminates the need for that party to compete with any other interested purchaser. Finally, if the spouse with a right of first refusal is in possession, the existence of the right of first refusal will provide a disincentive to maintaining the property, so as to increase its value and saleability.”
Consequently, the court explained that a right of first refusal falls outside the boundaries of what is ancillary or what is reasonably necessary to implement the order for sale of the matrimonial home. It distorts the market for the sale of the matrimonial home by eliminating the need to compete against any other prospective purchaser, thus potentially reducing the amount the joint owning spouse realizes on the sale.
The court found that, in the absence of consent, the right of first refusal should not have been granted by the trial judge in this case. It stated that if the husband wanted to purchase the matrimonial home, he would have to compete with any other interested purchaser.
As a result, the court allowed the appeal and ordered that the matrimonial home could be listed for sale immediately by the wife.
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