The Court of Appeal of Ontario decision in 1418885 Ontario Ltd. v. 2193139 Ontario Limited, 2018 ONCA 54, recently overturned a summary judgment motion decision which confirmed the importance of requisition letters in real estate transactions.
In this case, the parties had entered into an Agreement of Purchase and Sale for a property with a restaurant, golf course, 12 residential apartments, a two-storey home and a banquet hall. The Agreement of Purchase and Sale included the following requisition clause:
8. TITLE SEARCH: Buyer shall be allowed until 6:00 p.m. on the 30th day of May, 2016 (Requisition Date) to examine the title to the property at his own expense and until the earlier of: (i) thirty days from the later of the Requisition Date or the date on which the conditions in this Agreement are fulfilled or otherwise waived or, (ii) five days prior to completion, to satisfy himself that there are no outstanding work orders or deficiency notices affecting the property that its present use (Mixed uses (not limited to) commercial, agricultural, outdoor, residential) may be lawfully continued and that the principal building may be insured against risk of fire …
On the requisition date, the purchaser’s lawyer submitted a requisition that the vendor provide evidence that the present use of the property as residential apartments complied with local zoning by-laws. When the vendor’s lawyer responded that the residential apartments were a legal non-conforming use, the purchaser’s lawyer made enquiries with the zoning authorities which suggested that was not the case. The purchaser’s lawyer wrote to the vendor’s lawyer and suggested that the deposits be returned if this issue could not be resolved.
In the meanwhile, the parties proceeded with preparing for the closing of the transaction. The issue with the present use of the residential apartments was not resolved by the closing date and the purchaser’s lawyer advised the vendor’s lawyer that his client would not be closing on the transaction. The purchaser commenced an action for the return of the $150,000 deposits.
At the summary judgment motion, the judge found that the legality of the present use of the residential apartments was a valid objection and the vendor did not establish that the residential apartments were a legal non-conforming use. This would allow the purchaser to legally rescind the Agreement of Purchase and Sale and receive the deposits back, provided the purchaser did not waive its right to rely upon the objection.
The motion judge found that the purchaser had waived its right because it had: (a) full knowledge of the deficiency related to the present use of the property; and (b) communicated an unequivocal and conscious intention to abandon the right to terminate the contract based on its conduct in proceeding to prepare for the closing.
The Court of Appeal disagreed and held that the motion judge had erred in finding the purchaser had waived its right to rely upon its objection. Although the purchaser’s lawyer had prepared to close on the transaction, the purchaser did not communicate an unequivocal and conscious intention to abandon its objection. Instead, the purchaser only placed itself in a position to close on the transaction if it decided to waive the deficiency or some other solution to the issue was reached. Therefore, the Court of Appeal ordered the return of the $150,000 deposits to the purchaser with costs of the motion and the appeal to the purchaser.