Avoid these Pitfalls when Buying Real Estate (Part 2: Residential)

1. Buyers of a pre-construction home should put their best foot forward and take a full litigation approach when defending a lawsuit by a builder

I often see disputes where builders bring applications for summary judgment in court against buyers who renege on agreements for the purchase of pre-construction homes.

If challenged by a builder on a summary judgment application, buyers who reneged on a pre-construction agreement must raise all evidence in support of their position from the outset of the case, such as bringing expert evidence about the value of the property, conducting cross-examinations of witnesses, addressing deficiencies in the property, etc. In litigation lingo, we call this “putting your best foot forward” – something I usually do in these types of litigation disputes.

A recent decision from the Court of Appeal showcases the importance of putting your best foot forward when defending against an action by a builder. In the case of Rosehaven Homes Limited v. Aluko, 2022, the buyers signed an agreement of purchase and sale (APS) with Rosehaven (a builder) for a $1.5 million new home.

At first, the buyers followed the payment schedule in the APS, paying total deposits of $70,000. There was no financing condition. As the closing date approached, the buyer requested two extensions with the condition of additional deposits, which they made. Ultimately, the buyer was unable to obtain financing and failed to close.

Rosehaven declined a vendor-take-back mortgage for the remainder of the purchase price and resold the property at a loss for over $1 million.

In the motion for summary judgment, Rosehaven filed an expert valuation damages report assessing its total losses from the failed deal. The buyers did not question it. The motion judge held that the buyers failed “to put their best foot forward” and awarded damages against the buyers.

On appeal, the buyers raised issues for the first time about the valuation dates used in the builder’s valuation damages report, and the comparable residential property sales referenced in the report. The Court of Appeal upheld the decision of the motion judge because the buyers failed to raise these issues in the motion for summary judgment in the first place.

Lesson is: the buyers should have raised all their issues objecting to the builder’s expert valuation damages report when they received it, in the context of the motion for summary judgment, not later on appeal. In other words, get your grievances out up front.

2. Buyers can demand that requisitions be satisfied before the closing of a home purchase

Requisitions often come up before the closing of a real estate transaction. When one side does not answer the requisitions, the other side has to decide whether or not to delay the closing or abort the transaction.

In a recent case, Halliday-Shaw v. Grieco, 2023, the parties signed an agreement for the sale of a lakefront property in Niagara-on-the-Lake, in Ontario. Before the closing, issues arose relating to land access to the property, and the potential transfer of the seller’s non-resident tax liability to the buyers.

The buyers issued requisitions for a transfer of interest in the private road that services the property and demanded either a clearance certificate from the CRA or a solicitor’s undertaking to hold back 25% of the gross sale proceeds pending receipt of a clearance certificate on the basis that the seller was a non-resident.

The motion judge agreed with the buyers that they were at risk in the transaction and that their requisition for a holdback was reasonable. The Court of Appeal dismissed an appeal by the seller. It was reasonable for the buyer to request an extension of the closing. The buyers’ failure to close the transaction, in the face of unsatisfied reasonable requisitions, did not repudiate the APS.

Lesson learned: a buyer can insist that a seller comply with reasonable requisitions before closing, where the buyer would incur liability if the requisitions are not satisfied.

3. When calculating limitation periods in real estate claims, new owners are bound by what previous owners knew or should have known

Cottage properties are a fixture of real estate in many parts of Canada. Buying a cottage can be far more complicated than buying an urban property – it often requires a lot of due diligence investigation about lots, waterlines, access rights and many other features.

When a new owner of a cottage property discovers a problem and considers a cause of action against a neighbour or someone else, that new owner is bound by the history of the property and whether the former owners of the property were aware of the issue.

The real estate limitation period in Ontario starts to run when the facts establishing the cause of action were known or ought to have been known by a reasonably diligent person – including former owners of the property. Under section 4 of the Ontario Real Property Limitations Act (RPLA), the limitation period is 10 years from when a reasonably diligent owner of the property – including former owners – knew or should have known about the circumstances of the cause of action.

In the recent decision of Browne v. Meunier, 2023, the purchasers of a cottage on the St. Lawrence River in 2017 (the Brownes) sought to demolish a derelict boathouse that interfered with their access to the water. The boathouse was on the property of their neighbours (the Meuniers), who bought the adjacent property in 2015. The Meuniers’ predecessors had built the boathouse in 1969.

The Brownes launched a court application in 2020 for a declaration that the boathouse interfered with their riparian rights of access to the river. The Court of Appeal ruled that the Brownes were time-barred from bringing the claim against their neighbours under the RPLA limitation period which expired in 1979.

The boathouse was highly visible and the facts of infringement of riparian rights would have been obvious to the Brownes’ predecessors from around the time the boat house was built. The limitation period to bring a claim had long expired.

Lesson learned: before buying a cottage property (or any other property with a complex lot or real estate features), a buyer would be wise to conduct full due diligence investigation to understand the history of the property and what previous owners must have known and when.

Conclusion

From the challenges of backing out of pre-construction agreements to the nuanced issues surrounding requisitions and the intricacies of limitation periods, buyers and sellers alike must navigate a legal landscape that requires due diligence and sound legal strategy.

When deciding how to pursue or defend a real estate dispute, I try to assess what the overall strategy should be from start to finish, once I have all the facts in place. It is important to assess the legal implications of the key facts right from the start.

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The information contained in this article is provided for informational purposes only and does not constitute legal advice. Readers should not act on this information without seeking professional legal advice from a lawyer experienced in this area. The content in this article may not reflect the most current legal developments, and the application of law can vary in different provinces and territories. As such, the information in this article is not guaranteed to be complete, correct, or up to date. The author and the publisher of this article disclaim all liability for any actions taken or not taken based on any or all of the contents of this site.

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