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Specific Performance and Failed Real Estate Transactions for Investment Properties

Specific Performance and Failed Real Estate Transactions for Investment Properties

By:

Posted August 29, 2023

Specific performance refers to the Court-ordered remedy that the parties must proceed with completing a real estate transaction.

The recent Court of Appeal decision of 9725440 Canada Inc. v Vijayakumar (2023 ONCA 466), provides guidance as to when specific performance of an Agreement of Purchase and Sale is available and appropriate as a remedy for a failed real estate transaction, particularly in respect of a purchase of a property by a corporation for investment purposes.

Background

The property at issue in this decision was located in Pickering, Ontario. It was about 10 acres in size with a home of over 3000 square feet on the land.

The parties entered into an Agreement of Purchase and Sale in respect of the Property, which became binding after financing and home inspection conditions were waived.

However, the sellers later decided not to sell the Property, and refused to complete the sale on the closing date.

The Trial Decision

The purchaser, which was a corporation, commenced a claim against the sellers seeking the specific performance of the Agreement of Purchase and Sale. The purchaser also advanced an alternative claim for damages.

At trial, the trial judge determined that the evidence demonstrated that the purchaser would have had difficulty finding another property with the same features that had attracted it to the Property at issue. On that basis, the trial judge ultimately granted the remedy of specific performance of the Agreement of Purchase and Sale.

The Appeal

The sellers appealed. In their appeal, the sellers conceded that they had breached the Agreement of Purchase and Sale, but specifically appealed the trial judge’s order for specific performance of the Agreement of Purchase and Sale.

On appeal, the Court of Appeal noted that the ordinary remedy for a breach of contract is damages, and that the “exceptional” equitable remedy of specific performance should only be ordered where damages may not be an adequate remedy based on the specific circumstances.

The Court of Appeal stated that damages may not be adequate where a property is unique, based on its particular characteristics and based on the purchaser’s intended use for the property, but that there is no general presumption that all real estate is unique.

The Court of Appeal further cited previous case law in respect of investment properties, noting that Courts should be “reluctant” to order specific performance in respect of properties being purchased solely as an investment.

In reviewing the circumstances of the particular case, the Court of Appeal noted that the purchaser’s sole officer and director did not testify at trial as to the purchaser’s intention for the Property, and found that the purchaser’s corporate structured supported the proposition that the intention was to purchase the Property for investment purposes.

The Court of Appeal further inferred that, as a corporation, the purchaser could not live in the family home, but it can purchase and hold assets for estate planning purposes or for investment purposes.

As such, the Court of Appeal held that, in the absence of the purchaser having provided the necessary evidence that would justify an order for specific performance, damages were an adequate substitute for the purchaser’s loss due to the seller’s failure to complete the transaction.

Accordingly, the Court of Appeal allowed the appeal of the order for specific performance and substituted an order for an assessment of damages.

Takeaways

This decision further reinforces the high standard for obtaining specific performance in respect of a failed real estate transaction, especially in the context of a property being purchased as an investment property.

This decision suggests that a corporate entity purchasing a property may have more difficulty obtaining specific performance than an individual, unless there is compelling evidence put forward to the Court to demonstrate the uniqueness of the Property and that damages would not be an adequate remedy.

This blog post was written by Alexander Bissonnette, a member of the Commercial Litigation team.  He can be reached at 613-369-0358 or at Alexander.Bissonnette@mannlawyers.com.

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Alexander Bissonnette

Alexander Bissonnette

I am an associate and a member of the firm’s Commercial Litigation Group and Estate Litigation Group. My practice is exclusively focused on litigation matters, with an emphasis on commercial disputes and estate litigation. I have experience in a variety of disputes and litigation matters, including contract disputes, estate disputes, power of attorney disputes, collection matters (including post-judgment enforcement), franchise disputes, shareholder disputes and oppression matters, property disputes, insurance disputes (including broker negligence claims), procurement disputes, and mortgage enforcement. I also have significant experience working with senior counsel on complex commercial and estate litigation matters. After articling with Mann Lawyers, I was called to the Bar in 2017. Prior to that, I received my law degree in 2016 from the Faculty of Law at Queen’s University. During my time at Queen’s, I was actively involved with Queen’s Legal Aid, assisting students and Kingston residents with a variety of legal matters. Before... Read More

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