Importance of the Size of the Deposit

Importance of the Size of the DepositGo Big or Go Home?
The Importance of the Size of Deposit
In the case of Bianchini v. 1670948 Ontario Inc., 2016 ONSC 7367 the Ontario Superior Court of Justice was required to consider whether or not clear and unequivocal acceptance of an anticipatory breach by the purchaser was established by the vendor. This would determine how the $80,000 deposit on the transaction would be allocated. In the end, the court provided that acceptance of the breach had occurred and the deposit was ordered to be paid as damages to the vendor.

Facts
This case concerns a real estate transaction in which an initial deposit of $10,000 was paid to the purchaser, with an additional $70,000 deposit paid after the financing condition was waived in order to make the agreement firm and binding. The agreement firmed up November 14, 2012 and it was agreed that closing would take place on April 3, 2013.

In the afternoon on the closing date, the purchaser’s lawyer emailed the vendor’s lawyer stating that “[o]ur client has not yet received confirmation of the financing and will not be able to close today.” The vendor’s lawyer responded shortly thereafter with a letter indicating that his clients were “ready willing and able to complete this transaction and are not willing to extend closing. It is therefore our position that your client is in breach of the Agreement of Purchase and Sale, the deposits are forfeited and our clients reserve the right to sue for any additional damages”.

The parties did not dispute that the email notification from the purchaser’s lawyer was an anticipatory breach of the agreement. However, there was a dispute as to whether or not the contents of the letter from the vendor’s lawyer was an unequivocal termination of the transaction.

One of the contextual factors that surrounded this dispute was the fact that the real estate agent claimed that the purchaser had indicated, on the day of closing, that she was willing to extend the closing date but would not accept a vendor take-back mortgage. Three days after the closing date, the realtor stated in his affidavit that the purchaser contacted him and indicated that she was prepared to wait two weeks in order to facilitate closing. The purchaser, however, claimed that she was only willing to accept a new agreement with a new closing date on condition that evidence of financing could be provided, as she was under the impression that the previous transaction had been terminated. These alleged events would have an impact on whether clear and unequivocal acceptance was established.

Position of the Parties
The vendor submits that there was clear and unequivocal acceptance of the anticipatory breach; thus the agreement was terminated and they were entitled to damages.

The purchaser submits that the email from the vendor’s lawyer on the closing date was not a clear or unequivocal indication that the agreement was at an end. Further, it was argued that the discussions that had occurred between the real estate agent and the vendor resulted in the acceptance of the anticipatory breach being less than unequivocal.

Issues
The main issue in this case was summarized by the court as “whether or not the vendor gave clear and unequivocal acceptance of the purchaser’s anticipatory breach.” Deciding this issue would determine whether or not the vendor received the $80,000 deposit as damages or whether it would be returned to the purchaser.

Further, the court was required to consider whether the actions of the vendor had the effect of negating/ contradicting her lawyer’s letter “to the point where acceptance of the anticipatory breach is less than clear and unequivocal.”

Analysis
At the outset of the court’s analysis, it was stated that “the law is clear that where a vendor has committed an anticipatory breach, tender is not required, the purchaser is relieved of his/her obligations under the contract and entitled to damages.” The court then went on to consider the issues.

The court stated that the letter from the vendor’s lawyer on the closing date provided clear acceptance of the anticipatory breach and further indicated that the deal would not be extended and that damages would be sought. This letter was deemed to have finalized the vendor’s position despite the alleged discussions that occurred between the vendor and the real estate agent on the day of closing and three days after.

Another important point noted by the court was that the realtor was acting on both sides of this deal. In the court’s opinion, this affected the agents credibility as he had motive to push for the completion of the transaction between the two parties. Due to the ambiguity surrounding the discussions that took place between the agent and the vendor, and the credibility issues, the court determined that this factor would not create a waiver or result in the letter as being less than unequivocal.

Overall, the court held that there was indeed clear and unequivocal acceptance by the vendor of the anticipatory breach by the purchaser. As such, the $80,000 deposit was ordered to be paid to the vendor as damages. Additionally, the purchaser was required to pay $15,000 in costs.

Conclusion/Implications
The key take away from this case for realtors and clients to understand is that the size of the deposit is a very important aspect to consider at the outset of a transaction. This will have an impact on the amount of damages that can be claimed in the event of a breach. Generally speaking, a larger deposit is considered desirable, especially in a hot housing market such as Barrie where the size of the deposit may increase the likelihood of the acceptance of the offer and will also indicate a stronger level of commitment from the purchaser. However, in the event of a breach, this can have significant implications on the defaulting party.

The full case can be accessed at the following link:
https://www.canlii.org/en/on/onsc/doc/2016/2016onsc7367/2016onsc7367.html?resultIndex=1

New Mortgage Lending Rules

New Mortgage Lending RulesSince 2008 following the financial crisis the Canadian government has introduced a number of important changes in relation to the housing market. The most recent changes came into effect on October 17, 2016 and relate to new lending rules. Primarily, the aim of these changes is to prevent mortgage defaults by protecting homeowners/ prospective purchasers from taking on too much debt.

This comes in the wake of rising house prices which have instilled a fear that there may be a greater risk of future mortgage defaults in the event of rising interest rates. These lending rule changes are likely to have important implications for homebuyers, specifically foreign purchasers and first time homebuyers who were looking to enter the housing market.

To summarize, there are three main changes that have been introduced: 1) the expansion of a mortgage rate stress test; 2) new reporting rules for financial gains made from the sale of a primary residence; and 3) restrictions on insurance for low-ratio mortgages which comes into effect on November 30, 2016. Each will be discussed in turn.

1) Expansion of the Mortgage Rate Stress Test

Under the previous regime, purchasers who were able to come up with a 20% down payment were not subject to the stress test requirements which applied to high-ratio mortgages. High-ratio mortgages are loans in situations where the purchaser had a minimum of 5% but less than 20% down payment and were thus required to obtain mortgage insurance. Following the new lending changes, a stress test will be applied to ALL new insured mortgages, regardless of the down payment amount.

A mortgage rate stress test is aimed at ensuring that borrowers can afford to make loan payments in the event that interest rates on mortgages were to rise to the Bank of Canada’s posted five-year fixed rate, which is currently sitting at 4.64%. This represents a significant increase, as some lenders, such as TD, have a five-year fixed rate of around 2.5%. Generally speaking, the negotiated loan price in the mortgage contract will be lower than the Bank of Canada’s posted rate.

The stress test also takes into account other costs related to home ownership and requires that purchasers not spend more than 39% of their total income on “home-carrying costs”. These costs include things such as mortgage payments, property taxes and heating costs.

The result of requiring a stress test for all new insured mortgages is that purchasers will likely qualify for less money. While some purchasers may qualify for mortgages at the lower posted rates, it may be difficult or near impossible for them to qualify for the higher rates. The implications of this are that purchasers will have to turn their minds towards less expensive property, save up a larger down payment, or potentially wait until the future when their income may increase (particularly in the case of first time homebuyers).

2) Reporting Rules for the Sale of Primary Residences

This change is targeted specifically at foreign purchasers out of a concern that they are falsely claiming the primary residence tax exception when flipping homes in Canada. Under the new rules, any individual who was not a resident in Canada in the year that they acquired the property will not be able to claim the exemption for that year if the property is sold after October 1, 2016.

Furthermore, as of this tax year, all sale proceeds must be reported to the Canada Revenue Agency. Importantly, financial gain from the sale of a primary residence remains tax-free, meaning that this new change largely does not have an impact on Canadian residents aside from the requirement to report the sale. Primarily, this requirement is intended to lessen the likelihood that those who are not entitled to the primary residence tax exemption are receiving it.

3) Restrictions on Insurance for Low-Ratio Mortgages

The last change, which comes into effect on November 30, 2016, is the introduction of new eligibility requirements for newly insured low-ratio government-backed mortgages. Low-ratio mortgages are those where the down payment is equal to 20% or more of the property’s purchase price.

The new restrictions effectively mean that low-ratio mortgages must now meet the eligibility criteria that previously only applied to high-ratio insured mortgages. The new criteria to obtain a government-backed low-ratio insured mortgage require a maximum amortization period of 25 years (down from 35), a property value that is below $1 million, a minimum credit score of 600 and that the property will be occupied by the owner.

Consultation on Lender Risk Sharing

In addition to the above noted changes, the government launched a public consultation process on October 21, 2016, which will consider the implications of modifying the distribution of risk within the housing financing framework. Currently, Canada maintains a system with 100% government-backed mortgage default insurance. The new consultation process will focus on the potential introduction of a lender risk sharing scheme for government-backed insured mortgages which would mean that lenders would retain a certain level of management and exposure to the risk of mortgage defaults. A change of this nature would represent a significant structural change to Canada’s housing finance system.

For more information see the Technical Backgrounder on Mortgage Insurance Rules available on the Government of Canada’s website at:
https://www.fin.gc.ca/n16/data/16-117_2-eng.asp

The content of this blog is intended to provide a general guide to subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

A Glimmer of Hope for First Time Homebuyers?

A Glimmer of Hope for First Time Homebuyers?In a climate with soaring house prices, first-time homebuyers are finding it harder to enter into the housing market. In Barrie, the price of homes jumped approximately 24% reaching an average price of $476,000 last month. While this era of drastic growth certainly boosts the tax revenue for the Ontario government, it hinders the ability of homebuyers to purchase their first home.

With this reality in mind, Ontario’s Finance Minister, Charles Sousa, made an announcement in his fall economic statement delivered to the provincial legislature on November 14th, 2016, that the tax rebate offered to first-time homebuyers will be increased. Currently, first-time homebuyers are eligible for a Land Transfer Tax Credit (LTTC) which is a refund of the cost of land transfer tax relative to the property being purchased. The rebate is available regardless of the purchase price but only to a maximum of $2,000. This rebate applies to both new and resale homes. For example, on a home with a purchase price of $200,000 the tax payable is $1,725 and would be completely refunded.

Under the proposed changes, which are scheduled to take effect on January 1, 2017, first-time homebuyers will be eligible for a refund of up to $4,000 for the land transfer tax, thus doubling the current amount. This will effectively remove the land transfer tax from the first $368,000 of a home price. The eligibility criteria to receive this refund will also contain an important new restriction; only those first-time homebuyers who are Canadian citizens and permanent residents will qualify.

In order to offset the cost of this increase, the land transfer tax on homes that are purchased for over $2 million will be increased from 2% to 2.5% which, according to Government officials, will bring in approximately $105 million annually, thus funding the new rebate for first-time homebuyers.

Additionally, the land transfer tax payable on “commercial properties”, which includes commercial, industrial, multi-residential and agricultural properties, will be increased. For commercial properties that are over $400,000 the new tax rate will be 2%, which represents a 0.5% increase from the current rate of 1.5%.

With this information in mind, prospective purchasers of commercial properties, or homes that are over $2 million, may want to consider completing these purchases prior to January 1, 2017 in order to avoid the higher rates. First-time homebuyers, on the other hand, may want to hold off for a couple of months in order to take advantage of the new land transfer tax refund that will become available.

For more information on the financial assistance programs that are available for first-time homebuyers please download our First Time Homebuyers Guide by clicking here.

How Far Must Agents Go to Verify Listing Information?

How Far Must Agents Go to Verify Listing Information?A review of RECO discipline decisions would lead one to believe there is no limit to how much diligence is expected of agents to satisfy their professional obligations.

A decision from last year against a Barrie Agent brings this issue to the forefront and should be reviewed and understood by all agents to avoid against similar discipline.

In the Decision in question a Barrie Agent included in the MLS Listing Information and advertisements that the property backed onto Environmentally Protected Lands. The agent relied on the following to make that representation:
• Previous listing;
• Seller’s statements;
• Telephone communications with staff at the City. The evidence around this confirmation was vague and no one from the City gave evidence. The actual question posed was not available.

The buyer was retired and made it known that he was specifically looking for a property which had no homes in the backyard and/or backed onto parkland, woods or green space for privacy and quiet. He relied upon the MLS listing promoting the EP land. The Photo Feature Sheet provided when the property was viewed also included the statement “Backing onto EP Land – and Overlooking the EP Land and Trees”. It was noted that the offer did not contain a condition placing on onus on the buyer to verify or validate the zoning claims.

Upon moving in the neighbours were the first to inform the buyer that the property did not back onto EP lands. The buyer gave evidence that believed the buyer considered this claim in his offer and paid a premium for the EP lands.
The evidence given by a planner at the RECO hearing was that the property immediately behind the subject property was not and has never been zoned EP land. He also advised the panel that the public can request conformation on the zoning and land use by visiting or calling the planning office, although sometimes a fee is charged. The land behind the property has three zoning designations, being: agricultural, residential and EP; however, the EP lands are not adjacent to the subject property.

The Agent was found to have not properly disclosed materials facts (s.21.2), did not use best efforts to prevent a misrepresentation, (s.38) and therefore engaged in unprofessional conduct (S.39).
It is interesting to note that the Buyer’s agent was not found liable in this transaction. He gave evidence that the buyer located this property on his own by way of the internet, and the buyer did rely upon the representation that it backed onto EP land. This agent also stated that he did feel the buyer paid more based on the EP claim. I have noted that this appears to have been brought solely against the Seller’s Agent. If the Buyer’s Agent had been named I expect the outcome would have been different. It was in fact the Buyer’s Agent who was aware that the Buyer was looking specifically for a private backyard, and it was this agent that explained what EP land and zoning meant. I would have expected the Buyer’s Agent to have been equally as liable to have not verified the zoning knowing this was a material fact that was important to his client, and especially given that this agent had provided evidence to the panel that he believed his client paid a premium for this property with the EP lands behind it.

The Agent maintained that she had no reason to believe this information not to be true at the time and that she did nothing wrong. However, as a result of this incident she has changed her policies.
RECO concluded that the Agent did not take enough steps to check the information before advertising it to the public, and therefore her actions were unprofessional in failing to determine the zoning of the EP lands and that the actual location of the EP lands backed onto the subject property. There were public maps and records available to avoid such a misrepresentation and error. The Panel held that the Agent should have obtained written records of the true zoning.

The Agent was fined $5,000.00.

This is a lesson to be learned by all. Do not include anything in a listing that is not fully verified. If any doubt remains include a condition to warn that the agent has taken reasonable steps to verify the information, but that the Buyer is required to independently verify any information that is critical to the Buyer in their decision to purchase this specific property.

To see the full discipline decision click here.

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott
Elliott & Elliott
135 Bayfield Street, Suite 101A
Barrie, Ontario, L4M 3B3
Tel.: 705-797-2672
Fax: 705-797-8445
Email: shari@elliottlawyers.com

 

Just Because You Don’t Sell Doesn’t Mean You Don’t Pay

Just Because You Don't Sell Doesn't Mean You Don't PayAccording to the recent Superior Court decision in T.L. Willaert Realty Ltd. V. Fody, if someone signs a listing agreement, depending on the contents of the agreement and regardless of whether the property sell’s or not, the listing party can still be liable for payment of the commission.

In 2008, Richard Fody executed a listing agreement with T.L. Willaert Realty Ltd., to list his property for sale. Section 2 of the listing agreement described the terms upon which the commission was payable to the listing agent. Most notably the agreement stated the following:

“…The Seller further agrees to pay such commission as calculated above even if the transaction contemplated by an agreement to purchase agreed to or accepted by the Seller or anyone on the Seller’s behalf is not completed, if such non-completion is owing or attributable to the Seller’s default or neglect, said commission to be payable on the date set for completion of the purchase of the Property.”

After several offers were made which were not full asking price, Mr. Willaert found a buyer who was willing to offer the full asking price of $199,900. Once the offer came in to the agent, he faxed it over to Fody’s lawyer as well as dropped a copy off that same evening in Fody’s mailbox. Over the course of the next four days, Fody & Mr. Willaert exchanged text messages.

On the day the offer was set to expire, the agent sent a text message to Fody reminding him of the expiration of the offer as well as stating that the commission would still be due regardless of whether Mr. Fody chose to accept the offer or not.

Fody did not respond to the offer which was presented for full asking price and as such, felt he was within his right to refuse payment of the commission owing to Mr. Willaert as per the listing agreement.

In response to this, Mr. Willaert took Fody to Small Claims Court in order to recover his outstanding commission of $8,995.50. The Judge ruled in favour of Mr. Willaert stating:

“The court has no doubt Fody was avoiding and otherwise frustrating Willaert because he decided not to sell unless he was able to purchase a farm. When the prospect of purchasing a farm evaporated late in April of 2009 he became inaccessible and nasty and refused to act in good faith when Willaert was obtaining and communicating offers that were near, then at, the listing price…”

After Fody had lost his Small Claims Court case for the outstanding commission, he appealed that decision to the Superior Court of Justice where the Judge also ruled in favour of Mr. Willaert. In Superior Court, Justice Marc Garson ruled that the price which was offered was not only full asking price but was also the best price possible at the time. Justice Garson had this to say: “Acceptance of the offer is not required. The listing agreement clearly contemplated payment of the commission upon presentation of an offer at the full asking price.” 

This is an example of a situation when even if a sale transaction does not take place, depending on the wording of the listing agreement, a vendor may still be liable for the commission payable to the real estate agent. Given this case was appealed from a Small Claims Court decision and upheld in the Superior Court of Justice, it now becomes precedent setting and can have an impact on future transactions.

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott

Elliott & Elliott

135 Bayfield Street, Suite 101A

Barrie, Ontario, L4M 3B3

Tel.: 705-797-2672

Fax: 705-797-8445

Email: shari@elliottlawyers.com

Realtors Duties: It Pays to Be Cautious

Realtors Duties: It Pays to Be CautiousThe case of Wemyss v. Moldenhauer makes it very clear that real estate agents owe a reasonable duty of care to their client(s).

In this case the agent failed to recognize and bring to the attention of his client an amendment in the Agreement of Purchase and Sale that was stressed by his client as being of primary concern to him. What transpired was a cancelled Agreement of Purchase and Sale, which cost the buyer his deposit of $50,000.00.

Instead of the buyer taking the seller to court to recover his deposit, he turned around and sued his agent for breach of fiduciary duty in a real estate transaction. It was alleged by Mr. Wemyss (buyer) that Mr. Moldenhauer (agent) failed to protect his interests and, in particular failed to advise him with respect to a critical amendment to an agreement of purchase and sale, as a result of which he was unable to extricate himself from the deal and lost his deposit.  The facts of the case are as follows:

Mr. Wemyss hired Mr. Moldenhauer as his real estate agent, and found a home that he liked and was prepared to put an offer on it. Upon touring the property, he noticed a large area in the back yard, near the septic tank, which was wet and soggy, even though there had not been any rain for days. Mr. Wemyss was concerned about this and discussed this with his agent. He wanted the ability to cancel the deal and have his deposit returned if the inspection revealed a problem with the property’s septic system. The agent, Mr. Moldenhauer, drafted and presented an offer for $900,000.00. The initial offer was conditional upon the inspection of the property by the purchaser or the purchaser’s inspector as well as obtaining a satisfactory report.

After several offers and counter-offers were exchanged between the two parties, Mr. Wemyss accepted a counter-offer from the seller. The accepted offer contained several handwritten and initialled changes. The amendments made included the price, the exclusion of a rented hot water heater and a stipulation that the dimensions of the property were “as per survey”. Most importantly, the accepted offer contained the inspection clause that Mr. Moldenhauer had inserted into the April offer, but in the signback, the seller changed the inspection clause to limit its application to apply to structural defects only. During the home inspection, it was revealed that there was in fact a problem with the septic system. Mr. Wemyss tried to terminate the agreement and have returned his $50,000.00 deposit. At this point, he became aware that there was an amendment to the inspection clause. This limited the inspection clause to structural defects in the home and not to the whole of the property, as per the original inspection clause.

Mr. Wemyss sued his agent for breach of duty of trust and confidence which was owed to him in his capacity as his agent.

The court found that the agent was not only obliged to show his client the adjustment regarding the inspection clause, but also that the clause was fundamentally transformed. As a result of the agents failure to meet the standard of reasonable care and skill expected of a real estate agent he was ordered to repay the full $50,000.00 deposit, plus interest to his client.

This case is a prime example of how important it is for real estate agents to keep their client’s interests & concerns at the forefront when drafting and advising on Agreements of Purchase and Sale. If it can be shown that an agent has not been diligent in this respect and cost his/her client money, it is not completely unreasonable to see the agent held liable for those lost funds, whatever they may be.

 

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott

Elliott & Elliott

135 Bayfield Street, Suite 101A

Barrie, Ontario, L4M 3B3

Tel.: 705-797-2672

Fax: 705-797-8445

Email: shari@elliottlawyers.com

How to Avoid a Shortfall

How to Avoid a ShortfallHOW TO AVOID A SHORTFALL

What is a Writ?

A writ of execution is a court order granted to enforce a judgment obtained by a plaintiff from a court. If the judgment debtor owns real property, the judgment creditor can record the execution to “freeze” the title until the execution is satisfied.

This is KEY. If anyone has a judgment registered in the same county as the property is located, that property cannot be sold until the judgment is lifted either by full payment directly to the sheriff or by reaching a settlement with the creditor whereby they agree to release or lift the judgment.

The effect of a writ is limited to the jurisdiction in which it is filed. For example, a writ filed with the Sheriff of the City of Toronto does not have any effect on real property located within the jurisdiction of the Sheriff of the Region of Peel. If a writ is to be enforced or have an effect in more than one location, then separate writs must be filed with each applicable sheriff/enforcement office.

How Does A Writ Get Registered Against An Individual or Property?

Once someone obtains a judgment against a plaintiff, that judgment can simply be filed with the Sheriff who maintains a computerized index of writs by the plaintiff’s name. Once registered, the writ is active for six years and can be renewed every six years.

Often a writ results from bringing a small claims court action against another person and that person ignoring it. If you do not defend a money claim made against you in a small claims court action, the party bringing the action will be granted a default judgment. That judgment can be filed with the Sheriff and form a writ. This writ can be filed with no further notice to the plaintiff.

Statutory orders related to federal or provincial tax enforcement as well as family support enforcement can also be registered without prior consent.

How Is The Real Estate Agent Affected?

An outstanding writ is one of the most common financial aspects of a transaction that will cause a property to either not close at all or close in a shortfall position with no sale proceeds to pay the real estate commission statement.

What Does It Mean to “Run Clients’ Names” and How Is This Done?

This is where an execution search is performed against the exact name of the registered owner. The Land Titles Act provides that if a writ is filed under a different name other than that under which the owner is registered, the writ has no effect.

I recommend that agents run an execution search since this is vital to determining if there is going to be sufficient funds on closing. Ideally this should be run when the property is listed to confirm there are no liens, and hopefully there is no change in status prior to closing. Lenders also require clearance before funds are advanced. The status of your clients may change between the listing date and the sale but at least you will have proven your due diligence to the buyer’s agent and the buyer by taking this proactive step. If the agents do not run the names as part of the listing process the first time the names will be checked is by the buyer’s lawyer as part of the title search. Problem with that is requisition dates are commonly a week prior to closing and there is not enough time to deal with a writ that is discovered so close to the closing.

Land Registry Office Search

Writ searches can be performed by visiting the local land registry office. The process is simple and inexpensive. These searches are performed at designated Teranet terminals within the land transfer office at a cost of $11.00 per name plus $6.00 per writ.

Remote Search

Lawyers can also conduct remote searches on the Teranet eXpress website. This system provides flexible remote access to search writs filed and entered into the Ontario Writs System. This allows lawyers to retrieve writs details online and print writs detail reports. The Teranet eXpress system is available weekdays 8 a.m. to 8 p.m.

What Information Do I Need To Perform A Writ Search?

If you know the exact spelling of the owner’s name and the city in which they reside, you can perform a search. It is important to note however that an execution search can yield a match even though actual identities differ. Should this occur, it is advisable to have your clients contact their real estate lawyer to apply for clearance.

Conclusion

Searching for writs is a necessary part of all real estate transactions. Despite how complicated the execution process may sound, the actual running of a client’s name is fairly quick and inexpensive. If there is a Writ that will impact the sale or purchase of a property the sooner the information is known, the more likely a solution can be reached.

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott

Elliott & Elliott

135 Bayfield Street, Suite 101A

Barrie, Ontario, L4M 3B3

Tel.: 705-797-2672

Fax: 705-797-8445

Email: shari@elliottlawyers.com

Landlords Covenant for Quiet Enjoyment: More than Meets the Ear

Landlords Covenant for Quiet Enjoyment: More than Meets the EarYou may have heard the phrase ‘covenant for quiet enjoyment’ referring to a lease between a landlord & tenant. To most people’s surprise, this does not refer explicitly to noise. More specifically, this covenant or promise is in place to allow the tenant to use the premises in a way for which the premises was leased.  

This covenant can be either explicit or implied. In Ontario, this covenant is reflected in section 22 of the Residential Tenancies Act, which states as follows:

Landlord not to interfere with reasonable enjoyment

22.        A landlord shall not at any time during the tenant’s occupancy of a rental unit and before the day on which an order evicting the tenant is executed substantially interfere with the reasonable enjoyment of the rental unit or the residential complex in which it is located for all usual purposes by a tenant or members of his or her household.

 Even though the above is not the same as the common law definition of a “covenant for quiet enjoyment” it is the closest thing that the laws in Ontario have reflecting the covenant or promise.

What then does this covenant guarantee? It will cover any action which results in the tenant not having the full use & range for which the lease was signed. In a residential lease, this will include things like living on the property uninterrupted as well being able to use any amenities that accompany the property such as a balcony or pool.

An example of a breach of this covenant was evidenced in a recent court case in British Columbia. The tenant started to notice a foul odour on the leased premises where her clothing store was. As time went on the smell got worse. When the tenant complained to the landlord, they denied that there was anything wrong with the property. Eventually the tenant stopped paying rent and found an alternate location for her business. The landlord sued the tenant and lost. The court held that the existence of a “strong and unpleasant odour” defeated the purpose of leasing the space for a retail location because it could possibly damage inventory and dissuade customers from coming into the store. To read the full decision of the British Columbia Supreme Court, please follow the link provided:

http://www.canlii.org/en/bc/bcsc/doc/2013/2013bcsc1160/2013bcsc1160.html?searchUrlHash=AAAAAQARU3RlYXJtYW4gdiBQb3dlcnMAAAAAAQ

 This promise however will not cover such things as noisy neighbours, anything which doesn’t fall under the direct control or power of the landlord (such as city workers working in or around the property) or a temporary or minor interference.

There are a few different remedies that a tenant may pursue if they feel as if there has been a breach of the landlords ‘covenant for quiet enjoyment’. The tenant can affirm the lease and seek an injunction to stop the intrusive behavior by the landlord or the landlord’s agent as well as seek damages for any lost enjoyment. A tenant can also treat the lease as terminated, thereby releasing them from any further obligations under the lease in addition to seeking damages for the landlord’s breach. To treat the lease as terminated will only be seen by the court as acceptable where it is proven that there is a fundamental breach of the lease agreement which is generally tough to establish. It would seem that case law dictates that damages are the most common remedy sought and awarded in these situations.

It is wise for both landlords & tenants to take note of any covenant for “quiet enjoyment” of the property when signing a lease. The term in the lease agreement will specify what the landlord may or may not do which might interfere with the tenant’s ability to use their property. If there is no covenant in the lease agreement, then one will have to look to case law to determine their rights regarding “quiet enjoyment”.

 

 The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott

Elliott & Elliott

135 Bayfield Street, Suite 101A

Barrie, Ontario, L4M 3B3

Tel.: 705-797-2672

Fax: 705-797-8445

Email: shari@elliottlawyers.com

REALTORS® Duties: It Pays to be Cautious

According to the case of 11 Suntract Holdings Ltd. v. Classics Service & Hydraulics Ltd., a real estate agent has a duty to act with reasonable care and skill in reviewing the terms of a purchase agreement with his client. That duty includes obligations to specifically draw to the client’s attention, any provisions in the agreement that are contrary to the client’s interest or instructions given by the client. TO read the full court decision please refer to the link below:

http://www.canlii.org/en/on/onsc/doc/1997/1997canlii12181/1997canlii12181.html

In the case we are going to be looking at today, the agent failed to recognize and bring to the attention of his client an amendment in the Agreement of Purchase and Sale that was stressed by his client as being of primary concern to him. What transpired was a cancelled Agreement of Purchase and Sale which cost the buyer his deposit of $50,000.00.

Instead of the buyer taking the seller to court to recover his deposit, he turned around and sued his agent for breach of fiduciary duty in a real estate transaction. It was alleged by Mr. Wemyss (buyer) that Mr. Moldenhauer (agent) failed to protect his interests and, in particular failed to advise him with respect to a critical amendment to an agreement of purchase and sale, as a result of which he was unable to extricate himself from the deal and lost his deposit. The facts of the case are as follows:

Mr. Wemyss hired Mr. Moldenhauer in 1998 to be his real estate agent. In April of that year, Mr. Wemyss found a home that he liked and was prepared to put an offer on it. He decided to tour the property before making an offer. He noticed a large area in the back yard near the septic tank which was wet and soggy, even though there had not been any rain for days. Mr. Wemyss was concerned about this and discussed this with his agent. He wanted the ability to cancel the deal and have his deposit returned if the inspection revealed a problem with the property’s septic system.

The agent, Mr. Moldenhauer, drafted and presented an offer for $900,000.00. The initial offer was conditional upon the inspection of the property by the purchaser or the purchaser’s inspector as well as obtaining a satisfactory report.

After several offers and counter-offers were exchanged between the two parties, Mr. Wemyss accepted a counter-offer from the seller. The accepted offer contained several handwritten and initialed changes. The amendments made included the price, the exclusion of a rented hot water heater and a stipulation that the dimensions of the property were “as per survey”. Most importantly, the accepted offer contained the inspection clause that Mr. Moldenhauer had inserted into the April offer, but in the signback, the seller changed the inspection clause to limit its application to apply to structural defects only.

Mr. Wemyss testified at trial that when his agent brought the amended offer to him he said nothing about the amendment to the inspection condition. The agent told him to initial in various places, which he did. The only change that was discussed was the price, and Mr. Wemyss was prepared to accept the seller’s price.
During the home inspection, it was revealed that there was in fact a problem with the septic system. Mr. Wemyss tried to terminate the agreement and have returned his $50,000.00 deposit. At this point, he became aware that there was an amendment to the inspection clause. This limited the inspection clause to structural defects in the home and not to the whole of the property as per the original inspection clause.
Mr. Wemyss sued his agent for breach of duty of trust and confidence which was owed to him in his capacity as his agent.

The Court had this to say regarding Mr. Moldenhauer’s duty to his client:

“A real estate agent has a duty to act with reasonable care and skill in reviewing the terms of a purchase agreement with his client. That duty includes the obligation to specifically draw to the client’s attention, any provisions in the agreement that are contrary to the client’s interest or instructions given by the client”.
The agent was not only obliged to show his client the adjustment regarding the inspection clause, but also that the clause was fundamentally transformed.

As a result of the agents failure to meet the standard of reasonable care and skill expected of a real estate agent he was ordered to repay the full $50,000.00 deposit, plus interest to his client.

The foregoing case is a prime example of how important it is for real estate agents to keep their client’s interests & concerns at the forefront when drafting and advising on Agreements of Purchase and Sale. If it can be shown that an agent has not been diligent in this respect and cost his/her client money, it is not completely unreasonable to see the agent held liable for those lost funds, whatever they may be.

To review the full case please see the following link:
http://www.canlii.org/en/on/onsc/doc/2003/2003canlii19103/2003canlii19103.html

 

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott

Elliott & Elliott

135 Bayfield Street, Suite 101A

Barrie, Ontario, L4M 3B3

Tel.: 705-797-2672

Fax: 705-797-8445

Email: shari@elliottlawyers.com

Are Repairs Required to be Completed Prior to Closing? Were They?

Are Repairs Required to be Completed Prior to Closing?
Were they?

If you are representing a buyer and repairs must be made to the home how do you outline this in the agreement to ensure that it is completed to your client’s satisfaction? The case of Rosenhek v. Breda touched on the question of how to deal with repairs when buying a home and illustrated how important it is to ensure that terms contained within the contract are clear in order to avoid potential legal action. Also, it is recommended that you ensure a holdback is obtained so that if repairs are not made, there is money available to complete the work. To read the case of Rosenhek v. Breda, please click on the following URL:
http://www.canlii.org/en/on/onsc/doc/2010/2010onsc2786/2010onsc2786.html

In Rosenhek v. Breda a home inspection revealed various items which were required to be repaired. The total cost of the repairs was estimated to be between $5,000 and $10,000. The buyers agreed to waive the inspection condition and to firm up, but only on the basis that a Repair Agreement be included. The Repair Agreement listed all items which were required to be repaired on or before the closing of the transaction. The sellers approved this agreement and conducted work to rectify the issues.

On the day of closing (September 14, 2004), there was no evidence provided that the lawyers or any parties involved made any inquiries in relation to the repairs that were required to be completed. The deal closed as scheduled. Not all repairs had been completed as required. The sellers believed the work they undertook satisfied the terms of the Repair Agreement.

The Judge determined that the first indication of any attempt by the buyers to contact the sellers about an issue with the repairs was almost three years after the closing when a leak occurred in the family room ceiling. Even though the sellers believed that the work had been completed as required, they arranged for an experienced roofer to attend at the property. The roofer did not identify any signs of water leaking but recommended that pea gravel be spread on the roof which would help the water to disperse faster in the event of a rainfall. The sellers agreed to have this work completed as a goodwill gesture but without any warranty “due to the amount of time which [had] already lapsed with no previous concerns brought forth.”

The buyers rejected this offer from the sellers and obtained several quotes from roofing companies which ranged between $22,000 and $27,000. The buyers retained the services of the lowest bidder to complete the work.

The Judge reviewed the wording of the agreement and the intention of the parties as to whether or not the Repair Agreement would merge or survive closing. After viewing the agreement, he decided that this obligation was not intended to survive the closing as the agent provided for the items listed to be repaired on or before the closing date. As a result, the doctrine of merger was applied meaning that once the property was conveyed, the agreement was deemed completed and the Repair Agreement merged. The Judge determined this due to the fact that the obligations in the agreement were specific and they were intended to be completed on or before closing. To read more on what it means to ‘merge’ versus ‘survive’ closing view our brief blog on this topic: https://elliottlawyers.com/real-estate-law/difference-between-surviving-closing-and-merging-on-closing .

Another important term in the Repair Agreement was that the buyers were permitted to contact the sellers on or before closing to inquire about the status of the repairs and obtain confirmation that they had been completed. No such action was taken by the buyers or the buyer’s lawyer in this regard. If such action had been taken, and it was determined that the repairs had not been completed, the buyers would have had the right to terminate the Agreement of Purchase and Sale, or create a further agreement which would extend the obligation to complete the repairs beyond the day of closing. As a result of this inaction, the judge dismissed the action.

This case points to the importance of carefully drafting all provisions in an agreement, especially when there are issues associated with repairs and deficiencies. Also, it is very important that on or before the day of closing steps are taken to ensure compliance with any specific items that need to be addressed before the transaction closes. Another recommendation is to include a holdback relative to the amount of the repairs so that if they are not completed as required, that money can be used to complete the repairs. Attached is a sample clause to be considered when faced with a similar situation.

NOTE: The attached clause has been drafted with the intention to specifically separate & itemize repairs so there is no dispute when funds have to be released if only some of the work has been completed. Also be careful to rely upon the advice of a home inspector or specific consultant i.e electrician for electrical repairs when setting out the estimate.

Your client can be further protected by including a requirement for the seller to sign an undertaking to be responsible for the actual cost of the repairs that have been estimated upon presentation of a receipt for the work. I suggest this will be a second level of negotiation to occur after an inspection close to the closing day when it is evident the repairs will not be completed by the seller.

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

Shari D. Elliott
Elliott & Elliott
135 Bayfield Street, Suite 101A
Barrie, Ontario, L4M 3B3
Tel: 705-797-2672
Fax: 705-797-8445
Email: shari@elliottlawyers.com

SAMPLE HOLDBACK CLAUSE
(Holdback for completing work prior to closing)

1. The seller, at its expense, will complete and/or repair the following items:

ITEM ESTIMATE TO RECTIFY
Leak in basement bathroom faucet: $60.00 Crack in north exterior garage wall: $450.00
Broken window in kitchen: $90.00

The total value of repairs: $__600.00________

2. The buyer will hold back from the sale proceeds the amount specified in the above clause until all deficiencies specified are completed, and will place this holdback in the buyer’s lawyer’s trust account.

3. Deficiencies are to be completed before 5 p.m. on ____________________ (day, month, year). If the work is not completed, the total held back for each item not completed will be released to the buyer.

SAMPLE UNDERTAKING

The seller shall reimburse the buyer for completing the following repairs: (Insert work done).
The sum of $________ has been held back for these repairs based on estimates. The seller shall reimburse the buyer for the actual cost of the repairs upon receipt of invoices provided the work is completed and invoices are provided within 30 days of the closing.