Tag: real estate litigation

Categories
Real Estate Law

Ontario Court of Appeal: Real Estate Litigation Allowed to Proceed Despite Nine-Year Delay

In a recent Ontario Court of Appeal decision, a real estate case was allowed to proceed despite a nine-year delay.

What Happened?

The action was based on an Agreement of Purchase and Sale dated September 6, 2011, for a 12-unit apartment building in Toronto for the sum of $1.28 million. 

The agreement called for a $50,000 deposit and was conditional on the buyer obtaining financing. The buyer was allegedly unable to do so and purported to terminate the agreement.

On December 6, 2011, the buyer commenced an action for recovery of his $50,000 deposit. He claimed an additional $50,000 for loss of opportunity to invest the deposit.

On January 11, 2012, the sellers delivered a statement of defence and counterclaim, claiming damages of $100,000 for breach of contract. Nine months later, the buyer delivered a reply and defence to counterclaim.

At that point, the action stalled: no steps were been taken by any party to move the action forward for over four years until 2017 when the buyer requested a status hearing to prevent an administrative dismissal, at which the Master allowed the proceeding to continue. However, the buyer still took no steps to move the action forward.

As a result, in January 2018, the sellers served a motion to dismiss the action for delay or, in the alternative, for summary judgment dismissing the buyer’s claim and granting the sellers judgment on the counterclaim.

On March 20, 2018, a motion schedule was set for a return date for the sellers’ motion on September 11, 2018. However, the motion did not go ahead because the matter had not been listed. 

Finally, on February 27, 2019, the buyer’s counsel appeared in court to schedule a motion to vary the timetable set by the Master and for summary judgment. The motion, which resulted in the order at issue, was scheduled for July 24, 2019.

Both parties delivered materials on the July 24, 2019 motion. The sellers’ materials addressed both the merits of the claim and counterclaim and responded to the buyer’s request for variance of the timetable. 

Lower Court Decision

The motion judge noted the buyer’s failure to take any steps to move the action forward for several years after the exchange of pleadings. 

In considering the motion to vary the timetable, the motion judge made reference to the test in Reid v. Dow Corning Corp. and laid out the four Reid factors, namely: 

  1. the explanation for the litigation delay; 
  2. inadvertence in missing the deadline; 
  3. efforts to move promptly to set aside the dismissal; and 
  4. absence of prejudice to the defendant.

Considering the Reid factors, the motion judge found that the buyer:

  1. had not provided a satisfactory explanation for the delay;
  2. did not demonstrate that he failed to prosecute the action due to inadvertence;
  3. did not move promptly to bring a motion to vary the timetable; and
  4. had not proven that the sellers would not suffer prejudice.

On September 23, 2019, the motion judge therefore dismissed the buyer’s action for delay. She did not address the sellers’ counterclaim.

On October 21, 2019, after the dismissal of the action, the sellers served a notice of election to proceed with their counterclaim.

The buyer appealed.

Court of Appeal Decision

The Court of Appeal found that while the motion judge identified the need for a contextual analysis, she failed to consider a critical contextual factor: the dismissal of the buyer’s claim left the sellers’ counterclaim alive. The court stated:

“[I]t was not in the interests of justice to dismiss the [buyer]’s claim while permitting the [sellers] to litigate the very same issues in their counterclaim. The order did not promote the timely and efficient resolution of the proceeding. While the claim and counterclaim were well past their “best before” dates, neither party had displayed any diligence in moving the proceedings forward and there was no evidence of prejudice. When the litigation was finally ready for determination, the motion judge erred in failing to consider the fact that dismissing the claim would leave the counterclaim outstanding, exposing the [buyer] to liability in relation to the very same issue he was litigating.”

As a result, the appeal was allowed, the dismissal of the action was set aside, and the matter was remitted to the Superior Court for determination. 

Get Advice

Baker & Company has adopted all of the COVID-19 safety precautions and vulnerable employees have been invited to work from home. We are fully operational and continuing to work on client assignments. Where possible, meetings are being held via video link or by telephone conference.

At Baker & Company in Toronto, our real estate lawyers take the time to speak with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential. We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of leasing issues. Call us at 416-777-0100 or contact us online for a consultation.

Categories
Litigation Real Estate Law Residential Real Estate

Can I Back out of a Real Estate Contract Due to COVID-19?

As with everything else, the health pandemic has created a great deal of unease for those who entered into Agreements of Purchase and Sale for homes prior to our current situation. For various reasons, many people are left wondering if they have options to cancel contracts that were executed before the crisis hit. If not, people may be wondering what ramifications they would face for backing out of a closing. Below, we’ll address residential real estate contract obligations in light of COVID-19.

Property Values and Loss of Income

The two primary concerns buyers have with closing deals entered into in February or earlier are the potential drop in property values and loss of income. In many cases, both issues are a factor. With the closure of non-essential businesses throughout the province, many people have been laid off or are facing drastic reductions in income. Nearly one million Canadians applied for employment insurance benefits during the week of March 16th alone. Given the ongoing economic crisis, people have serious concerns about what effect this will have on property values in Ontario going forward. Considering we are still in the midst of a state of emergency, the long-term effects on housing prices won’t be known for some time.

Do people who have financial concerns have any recourse if they’re already entered into a contract?

Frustration of Contract and Force Majeure

We have previously discussed the potential for someone to argue frustration of contract or use a force majeure (or “Act of God”) clause to relieve themselves of liability in relation to COVID-19. Without specific language that considered a pandemic to be an event significant enough to walk away from the contract, this is a tough argument to make with most contracts. In a real estate context, it becomes even more difficult. Nearly all purchases and sales use the standard Ontario Real Estate Association Agreement of Purchase and Sale, which does not include such a provision. Parties are entitled to include additional clauses at will, however this must have occurred at the time the contract was executed in order to be valid.

There are previous examples of buyers seeking to back out of a purchase in light of an economic change. British Columbia introduced a foreign homebuyer’s tax in 2016 that had a significant impact on buyers from out of the province, which helped contribute to an overall decline in home prices. As a result, many buyers tried to get out of their contracts, however, they were not permitted. It is unlikely a court would find differently in light of the current circumstances.

Penalties for Backing Out

We have addressed the significant financial fallout that can occur when a person fails to close a real estate transaction in a previous blog, but it is worth noting again that it is not just a matter of losing one’s deposit. Buyers that fail to close could also face liability for a difference in purchase price if a seller is forced to re-sell at a lower price. One couple in Ontario had originally agreed to buy a home for $2.25 million and later backed out for financial reasons. When the seller resold, the price dropped to $1.77 million and the original buyers were found liable for the difference, which amounted to $470,000.

As demonstrated above, failing to close on an Agreement of Purchase and Sale can have hefty financial consequences for the party in breach, far beyond simply giving up the deposit. The housing market can fluctuate quite significantly and result in drastically different purchase prices just a few months later and the buyer who originally backed out may be forced to pay the difference in addition to legal costs. If you have concerns about a real estate deal you entered into prior to the pandemic, and questions about your rights and obligations, you should seek advice from an experienced real estate lawyer as soon as possible.

At Baker & Company in Toronto, our real estate lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100 or contact us online for a consultation.

Categories
Property Disputes Real Estate Law Residential Real Estate

Neighbours Enter Costly Litigation With No Successful Party

Before entering into litigation with a neighbour over a property dispute, it is vitally important to consider the chances for success, and what may be at stake if you lose. While property damage can no doubt be costly, litigation might be even more so, as was demonstrated by a recent decision of the Ontario Superior Court.

Neighbours Both Undergo Construction; One Suffers Water Damage

The parties involved owned homes on adjoining properties in Toronto, with the defendant’s property being uphill from the plaintiff’s land. Both parties undertook large construction projects on their respective homes. The plaintiff completed significant landscape construction which included the removal of hard surfaces in the backyard; the removal of concrete and asphalt surfaces in the laneway, the addition of a downspout to the second story balcony; and the installation of water management features, including installing a soak‑away pit, installing weeping tile tubes to drain water away from the foundation of the home to the soak-away pit; grading the backyard to slope away from the foundation of the house, and installing a new retaining wall.

The defendants, meanwhile, tore the existing house down on their property and had a new one constructed. The main changes to their property as a result of the new construction were:

  • a new garage was erected with a downspout directed toward the plaintiffs’ backyard;
  • a downspout was installed at the southwest corner of the house;
  • the grading, completed in May of 2016, was raised, resulting in an increased slope towards the plaintiffs’ house;
  • an underground pipe was installed, connecting to and draining water from the northeast and southeast corner downspouts of the house. Therefore, approximately half of the roof of the defendants’ house drains to the southwest downspout and toward the southeast corner of the plaintiffs’ house, and the other half of the roof of the defendants’ house drains to the front yard pipe and toward the plaintiffs’ driveway.

The plaintiffs began to notice water infiltrating their basement the same month that the defendants moved into their new home. After completing remedial work to stop the water from entering the basement, the plaintiff brought an action against the defendants for over $83,000 in damages including rent abatement for the basement tenant, remedial work to stop the leaking and additional costs associated with the damage to the basement. The defendants argued that they were at most 25% contributorily negligent for the damages to their neighbours’ property.

Expert Evidence on Both Sides

Each side retained an expert to plead their case, with the plaintiffs’ witness claiming that the damage would not have occurred but for the change in direction of the water flow from the defendants’ property. The defendants’ expert, on the other hand, claimed that even though there was increased water directed at the plaintiffs’ yard, the damage would not have occurred had the plaintiff’s not removed the hard surfaces in their yard when they completed the landscape construction.

Ultimately, the court found that the defendant’s expert evidence was preferable, concluding that:

I have not found liability on the part of anyone for anything…It is very unfortunate that these neighbours could not have found some way to work this out. Sadly, both sides have incurred significant legal costs and an even more significant amount of stress.

The Takeaway for Potential Litigants

Litigation is expensive, particularly when expert evidence is necessary, as was the case here. In addition to that, litigation can be extremely time-consuming. While it is important to seek remedies when one has been wronged in some way, it is equally important to ensure that an attempt is made to resolve issues in the most efficient way possible for everyone involved. The risks of doing otherwise may not be worth it in the end. Particularly when dealing with neighbours, finding an amicable and cost-effective resolution should always be the primary goal, with litigation being a last resort. An experienced lawyer can facilitate negotiations or a settlement that can help the parties to reach a resolution before stepping into a courtroom.

At Baker & Company in Toronto, we take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of real estate disputes, or through litigation if necessary. Call us at 416-777-0100 or contact us online for a consultation.

Categories
Litigation Property Disputes Real Estate Law Residential Real Estate

Suing a Condo Corporation for a Delay in Repairs

What a condominium corporation’s obligations to individual owners with respect to repairs? If an owner is unsatisfied with the response to repeated complaints, are they entitled to damages? When might a condo corporation’s failure to address an issue to an owner’s satisfaction be considered oppressive?

A recent decision of the Ontario Superior Court of Justice dealt with these questions, following a five-year battle between a condominium owner and the corporation.

A Five-Year Complaint History

The complainant had purchased a unit on the top floor of a 15-storey condominium building. Four years after moving in, she began to notice an excessively loud noise emanating from what sounded like an industrial fan or a motor on the roof of the building that disturbed her significantly. She made a verbal complaint to the condominium corporation in 2014 about the noise and when nothing was done, she made a further complaint in writing.

In 2019, five years after the owner’s initial complaint, the condominium corporation replaced two exhaust fans that were located above the owner’s unit. While the noise was still present, the owner said that this helped to reduce it significantly. The complainant brought an action against the condo corporation for failure to meet its statutory obligations with respect to repairs and maintenance, as well as oppression.

What Exactly Are a Condominium Corporation’s Obligations?

Under ss. 89 and 90 of the Ontario Condominium Act, a corporation does have a statutory obligation to repair and maintain the common elements of a condominium:

89 (1) Subject to sections 91 and 123, the corporation shall repair the units and common elements after damage.

90 (1) Subject to section 91, the corporation shall maintain the common elements and each owner shall maintain the owner’s unit.

However, the court, in this case, was careful to point out that the standard of a corporation’s obligation is one of reasonableness. In this case, there was no evidence that the complained-about noise had occurred as a result of a failure to properly repair or maintain the fans that were eventually replaced. Further, there was evidence that the corporation had ensured that the fans were inspected and maintained on a regular basis, going back to before the complaints began.

To address the noise complaints, the corporation brought in a third party company to inspect the fans, and no underlying cause of the noise was found. The same company inspected the fans again six months later, and then six months after that. On the last visit, the company installed new blower assemblies on the fans above the complainant’s unit in an attempt to make them quieter.

In 2018, the complainant hired an acoustic engineer to inspect the fans. His report showed that the fans were old, contained some rust and did not appear to have any acoustic or vibration insulation. However, he did not test the fans beyond inspecting them visually.

Three months later, the corporation retained mechanical engineers to inspect the fans. The engineers recommended some servicing to address a slight bearing noise on one fan and said the other was actually quieter than industry standards. The corporation carried out the recommended service but the complainant said that the sound persisted.

Given the fact that the fans were regularly inspected and maintained, and that the corporation had the fans inspected by engineers specifically to address the complaints, it could not be said that the corporation had violated a reasonable standard of repair and maintenance. Further, the complainant alleged that the noise had been due to a failure to maintain the fans, but also said the noise persisted even after the service recommended by mechanical engineers had taken place.

Was the Corporation’s Conduct Oppressive?

The complainant alleged that the corporation had ignored her complaints and failed to address a serious issue that was highly disruptive for five years. However, the court found that this ignored several steps the corporation took during that time frame to identify and address the noise she complained of. When the corporation eventually did order new fans, the complainant, through her lawyer, objected to the manufacturer’s installation instructions, based on the opinion of a consultant she had retained to review them. The installation was delayed for nearly nine months due to this objection, and eventually, the complainant allowed the corporation to proceed with the original instructions.

While the corporation’s response had some faults, including failing to respond in writing initially, and then providing a memo from the superintendent that was dismissive and sarcastic in tone, overall the response was reasonable in the given circumstances. On the issue of oppression, the court ultimately concluded that:

A unit owner seeking an oppression remedy under the Condominium Act must show both that there was a breach of their reasonable expectations and that those reasonable expectations were breached by conduct legitimately characterized as oppressive. I find that [the complainant] had a reasonable expectation that [the corporation] would comply with its statutory obligations to repair and maintain its common elements. I also find that [the corporation] acted reasonably and in compliance with these obligations.

While condominium owners certainly have a right to expect action from their condominium corporation when it comes to the repair and maintenance of the common elements, the standard of reasonableness must be kept in mind. Prior to initiating a potentially costly and time-consuming action in court, a complainant should carefully consider whether they will be able to establish that the corporation failed to meet the reasonableness standard under the given circumstances.

At Baker & Company in Toronto, our lawyers take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, disputes, or through the litigation process. Call us at 416-777-0100 or contact us online for a consultation.

Categories
Property Disputes Real Estate Law Residential Real Estate

Condominium Corporation Not Permitted to Reopen Approval Process for Structural Changes

A home renovation can be a long and drawn-out process; one that causes great inconvenience to a homeowner and may require extensive permissions before it can even begin. Anyone who undertakes a major renovation after completing the due diligence to obtain the necessary permits would be justifiably surprised and upset if said authorization was revoked after the work had been completed. That is just what occurred in a conflict that was recently decided by the Ontario Superior Court between condominium owners and the condominium corporation. The dispute centred around the lack of an agreement under s. 98 of the Condominium Act (the “Act”).

What is a s. 98 Agreement?

Before looking at the case itself, it is helpful to review the purpose of s. 98 of the Act. This section requires that an owner enter into an agreement with the condominium corporation before making any changes that affect the common elements of a condominium. If the changes are approved, the corporation will enter into an agreement with the owner(s) with the primary purpose of setting out the following terms:

  • To apportion the cost of the proposed change(s) between the owner(s) and the corporation;
  • To set out the maintenance, repair, and insurance obligations with respect to the proposed change(s).

Generally, once an agreement is executed, it will be registered on title for the property.

Background of the Case

The applicants in the case at hand were the owners of one unit in a twenty-unit condominium in Muskoka. Soon after purchasing the unit, the applicant husband was appointed to the Board of Directors (the “Board”), a role that he filled for three years. At one point the applicants expressed an interest in buying another unit in the building in order to accommodate more visitors, and the owners of the unit next door to theirs advised them that they were planning to sell. Before committing to purchase the unit, the applicants submitted a proposal to the Board seeking approval to create an opening between the two units in order to create one large condominium. The changes would affect a common element in the building, being the shared wall between the two units.

At the time of the proposal, the Board consisted of four members, one being the applicant husband and another being the owner of the unit next door to the applicants. All four of the Board members were present for the meeting, along with the property manager. However, the owner of the unit the applicant wanted to purchase declared a conflict of interest and excused himself for the relevant portion of the meeting. The applicant remained for the entire meeting but abstained from voting on his proposal. The proposal was approved, leading the applicants to then purchase the condominium from their neighbour. At the meeting, those present had discussed the need for a formal agreement under s. 98 of the Act, but one was never put into place. At the time, the condominium corporation was in the habit of approving changes to common elements without a formal s. 98 agreement.

The applicants completed extensive renovations, opening the connecting wall between the units, and removing the kitchen in one unit to create a more cohesive single condominium. After the changes had been completed, a new Board president was elected. The new president took issue with the lack of a s. 98 agreement with respect to the applicants’ renovations, and all other changes that had been made by other condo owners. It was decided that all owners who had made changes affecting common elements would be required to enter into retroactive agreements. The applicants were provided with an agreement to sign, which contained a clause not found in the agreements received by other owners. It stated as follows:

The Improvements shall be removed by the Unit Owner, at the Unit Owner’s sole expense, before the Unit is sold.  Specifically, the Unit shall be restored to the condition before the Improvements were made, including but not limited to the reinstallation of the common element demising wall within the Unit and any changes that were made by the Unit Owner related thereto.  

The Court’s Ruling

The applicants brought a claim against the corporation, saying that the clause overreached by requiring the restoration of changes unrelated to the common elements. They claimed that the corporation’s behaviour was oppressive and unfairly prejudicial in light of the fact that the changes had already been approved and completed, and the agreements provided to the other owners did not contain a similar clause. The corporation responded saying that the permission previously granted was invalid due to the applicant’s conflict of interest, which resulted in a non-quorum at the meeting, and cited the lack of a s. 98 agreement to further invalidate the approval.

The court found in favour of the applicants, reasoning:

Board approval was sufficient and was given.  [The applicant] did not have a conflict because the proposal was not material to the Condominium.  There was therefore a quorum.  The approval is not problematic as a result of these issues. I therefore conclude that there was an effective Board approval given for the structural change made by the applicants.  The relief sought by the Condominium, which assumes that it can begin the approval process again, is therefore inappropriate.

The court awarded the applicants $10,000 in general damages due to the corporation’s oppressive and unfair conduct. The court did agree that a s. 98 agreement was necessary but ordered the overreaching language in the oppressive clause be removed. The applicants will be required to restore the common wall prior to selling either unit, but would not be required to say, reinstall a kitchen in the second unit. The changes unrelated to the wall would not be covered by a s. 98 agreement as they are not common elements. The applicants would be under no obligation to restore them since restoration was not contemplated at the time approval was granted.

This case should be a lesson to condominium boards regarding the importance of putting a s. 98 agreement into place from the start and setting out all expectations with respect to changes affecting any common elements. A corporation will likely be prevented from placing an unfair onus on condominium owners after the fact if that onus is deemed to be oppressive or unfair.

At Baker & Company in Toronto, we take the time to meet with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential.  We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of transactions, or through litigation. Call us at 416-777-0100 or contact us online for a consultation.