Court File and Parties

COURT FILE NO.: CV-16-551093 and CV-16-553274 DATE: 20170127 SUPERIOR COURT OF JUSTICE – ONTARIO

Court File No. CV-16-551093 RE: Tibor Urac and Anica Urac, Applicants AND: Mohamed Ferawana and Re/Max Unique Inc., Respondents

AND BETWEEN:

Court File No. CV-16-553274 Mohamed Ferawana, Applicant AND: Tibor Urac and Anica Urac and Re/Max Unique Inc., Respondents

BEFORE: Madam Justice Kristjanson

COUNSEL: Stephen M. Turk for the Applicants, Tibor Urac and Anica Urac Larry Plener for the Respondent, Mohamed Ferawana

HEARD: January 13, 2017

Endorsement

[1] This is a decision on two applications. The Ferawana family was searching for a large residential property suitable for their extended family comprised of Mr. Ferawana, his parents, and his nine siblings with their spouses and children. They found a property comprised of 6 legal units and an additional smaller unit each he believed would be suitable for the extended family, and they entered into an Agreement of Purchase and Sale with the Uracs, vendors of the property.

[2] The sale didn’t close. Now, Ferawana seeks specific performance of the Agreement of Purchase and Sale, claiming that the Uracs failed to perform the contract in accordance with the duty of good faith in contractual performance, and failed to take all necessary steps to secure performance, frustrating the ability of Ferawana to obtain financing. The Uracs maintain that they had met all their obligations by the closing date, the Ferawana’s failed to complete, and as a result, the Uracs are entitled to the deposit.

[3] I find that Ferawana did not comply with his obligations under the Agreement of Purchase and Sale. As a result, the vendors are entitled to a return of the deposit.

Background to the Litigation

[4] The agreement of purchase and sale is dated June 10, 2015. Ferawana deposited an initial $25,000 and following the waiver of conditions, deposited the remaining $25,000 due under the Agreement. The Agreement called for the transaction to close on January 12, 2016. Ferawana requested an extension until January 26, 2016, which was granted by the Uracs. On January 25, Ferawana requested a further extension until February 19. The Uracs did not agree to the request for extension. As a result the transaction did not close. On January 27, the Uracs requested that the broker release the deposit funds to the vendors. That request was made again in March, prior to the Uracs commencing an application for the deposit in April, 2016.

[5] In May, 2016 Ferawana commenced an application seeking specific performance of the Agreement of Purchase and Sale and, in the alternative, the release of deposit to Ferawana. The grounds for the application were that the Uracs failed to cooperate with the efforts of the purchaser to close the transaction in good faith. The allegation is that this was done by not delivering required information regarding “rent rolls”, thereby causing the cancellation of financing agreements obtained by the purchaser, and greatly delaying the approval of new financing. The notice of application states that it was the actions of the vendors, “by actively or passively obstructing the arranging of the financing which caused the inability of the purchaser to complete the transaction as the vendors failed to act in a reasonable commercially acceptable manner.” Another allegation relating to refusal of access to an appraiser was abandoned at the hearing of the application.

Contractual Obligations – Agreement of Purchase and Sale

[6] The Agreement of Purchase and Sale provided as follows:

(1) the completion date was January 12, 2016;

(2) the buyer was to assume the tenants;

(3) there was a time is of the essence clause which provided:

Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers…

(4) There is entire agreement clause providing in part:

this Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein;

(5) Schedule A provided that the offer was conditional upon the Buyer arranging financing within 7 banking days upon acceptance, the inspection of the property, and approval by the buyer’s solicitor;

(6) Schedule B made provision for an initial deposit of $25,000 and a further $25,000 deposit upon the removal of all conditions. Ferawana made both deposits and waived the conditions in the Agreement of Purchase and Sale. Schedule B also provided that the seller did not warrant the legality of the studio apartment (the 7th unit), and provided that the Buyer agreed to assume all tenants as set out in Schedule C;

(7) Schedule C provided a listing of the suites, the rents, number of bedrooms, and the gross yearly income of $81,144.

[7] On December 29th, the purchaser’s lawyer provided their requisition letter setting out matters required for closing, including 7 directions to tenants and 7 tenant’s acknowledgments.

[8] On January 5, the vendor’s lawyer responded to the requisition letter, and on January 8 enclosed all vendors’ documents and the keys to the property, to be held in escrow pending receipt of closing funds and other documents.

[9] On January 6th the purchaser requested an extension of the closing date to January 26th. The extension was accepted by a written agreement, on terms including that the purchasers agree to waive tender effective January 26th, 2016, and “all other terms of the Agreement of Purchase and Sale remain the same and time shall continue to be of the essence.” This was confirmed by the purchaser’s solicitor in writing on January 12th.

No Breach of Duty of Good Faith and Honest Performance

[10] The primary argument of Ferawana was that there was a duty of good faith in contractual performance on the vendor to cooperate and provide information in a timely manner to facilitate the completion of the contract. In this respect they argued that tenant information was requested on November 12, December 10 and December 29 and was not provided until after January 5, 2016 which did not give sufficient time for the purchaser to respond, thus leading the mortgagee to reject the application for to support the financing.

[11] Ferawana relies on a duty of good faith and honest performance which required the vendor to provide information in a timely manner to facilitate the completion of the contract: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494. As stated by Cromwell J. in Bhasin at para. 73:

I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one's contractual performance.

[12] There is no evidence that the purchasers ever informed the vendors that additional tenant information was required to secure financing. At no time were the Uracs advised that a rent roll, leases, or tenant names were required for financing. At no time were the Uracs ever informed that Ferawana was having difficulty in obtaining financing, nor did he ever indicate that the Uracs were uncooperative or hindering his ability to obtain financing. However, Ferawana states that lack of cooperation by the vendors is the sole reason they were not able to close in a timely manner, “whether or not the vendors knew they were the cause,” due to the allegedly late provision of tenant information.

[13] I do not accept this argument. I find on the evidence that the Agreement of Purchase and Sale was initially conditional on financing, and that condition was waived. In fact, Ferawana admitted on cross-examination that he was pre-approved for a mortgage on June 25, 2015, but did not pursue the pre-approved mortgage due to the interest rate, and he subsequently sought other financing at a more favourable rate which he was not able to secure in time. However, the financing condition was waived. There was no request to extend the condition on financing.

[14] The argument by Ferawana seeks to imply a condition that the Uracs had a duty to facilitate the obtaining of financing. In light of the lack of contractual obligation, the waiver of the financing condition, and the entire agreement clause, this duty cannot be implied.

[15] In addition, it was never conveyed to the vendors that any additional information was required to secure financing. On November 12, the purchaser’s lawyer made a request for vacant possession and asked the vendors to send notices of vacancy to all tenants. The same day, the purchaser’s lawyer and vendor’s lawyer had a discussion, followed up by an e-mail from the vendor’s lawyer indicating that the Agreement of Purchase and Sale provides that the buyer is to assume the tenants and therefore the purchaser’s request to take vacant possession of the property was denied. On the same day, the purchaser’s lawyer wrote to a law clerk in the vendor lawyer’s office making a request for leases. In fact, there were no leases for any of the units. There is no evidence that the purchaser’s lawyer raised the issue of leases with the vendor’s lawyer, or ever indicated that the information was needed for financing.

[16] On December 10, the purchaser’s lawyer asked to have a copy of the tenant contracts as soon as possible and otherwise, to provide them with the names of tenants and their addresses if available. On December 29, the purchaser’s lawyer asked to have “leases, names of tenants for each unit in Schedule C so that we can prepare direction to each tenant.” The purchaser’s lawyer further indicated that they would require the tenant’s acknowledgement for each tenancy/unit. This is the first time a purpose for the request was indicated and that was for the purpose of preparing directions, not for financing. On December 30, the vendor’s lawyer confirmed there were no leases, all tenants were on a month to month basis, and that tenant acknowledgements would be obtained. On January 5th, the buyer’s counsel provided the tenant’s acknowledgments.

[17] I have also considered the evidence of the request for rent rolls, leases, or tenant information as it relates to the financing claim. The affidavit evidence in the Ferawana application was provided by Mohamed Ferawana’s brother, Mohand Ferawana. Contrary to the statements in the Ferawana affidavit, there was never a request for the “rent rolls”, and the purchaser’s lawyer had no evidence of receiving any request for the “rent rolls.” The evidence of Mrs. Urac is that in any event, the “rent roll” was attached as Schedule C to the Agreement of Purchase and Sale and as such the purchasers at all times knew what the rental income of the property was. A statement of income for the property was included in the marketing materials, as well as set out in the Agreement of Purchase and Sale, Schedule C. The requirement to provide “rent rolls” was not an obligation in the Agreement of Purchase and Sale. Indeed, in response to the December 29 request the vendors did provide tenant acknowledgements on January 5, in time for the original January 12th closing and the extended January 25 closing. At all times Ferawana had the listed income by unit, and gross income. While much of the affidavit evidence of Ferawana is about requests for “rent rolls”, there is no evidence that a request for “rent rolls” was ever made to the vendors’ lawyer.

[18] Ferawana’s affidavit states that TD Canada Trust “had requested the rental information in July, 2015 directly from the vendor’s realtor”, but denies receiving the information. Mrs. Urac in her affidavit states that she provided a handwritten list of rents by address, unit number and tenant name on September 21, 2015 to the Uracs real estate agent, and the agent believed he had passed along to Mr. Ferawana’s agent. The recollection of Mrs. Urac is that this listing of rents was prepared in response to TD Canada Trust’s request for information received on September 15, 2015. There is no evidence that any request for leases was made until November 12, and there were no leases for the property.

[19] The evidence in the record does not support Ferawana’s claim that the failure to provide rent rolls led to the declining of the mortgage in any event. The TD Canada Trust letter indicates that an application was initially declined on October 15 2015 “mainly due to the level of vacancy.” To the extent that this was due to lack of tenant information as alleged, I note that Schedule C to the Agreement of Purchase and Sale indicated the gross rents for each apartment. More importantly, the 2nd TD Canada Trust application was reviewed on January 26, and again declined. The TD Canada Trust letter goes on to state that: “the main reasons for the decline was the property rents are currently approximately 20% below CMHC market rents for the area, and the loan amount was not able to be serviced by the rental income for the property.” The decision to decline by TD Canada Trust was due to the debt to income ratio, and not the actions of the Uracs.

[20] Thus, even once the tenant information was provided in respect of the mortgage commitment which had been conditional upon verification of rental income, the lender rejected the financing on the grounds that the rentals charged were 20% under rental units for similar units and would not support the mortgage for the property.

[21] Ferawana also relies on a Discussion Paper regarding proposed credit facilities from BMO dated December 18, 2016. The Discussion Paper clearly states “this is presented for discussion purposes only and does not represent a statement or commitment”. In light of that clear representation in Ferawana’s letter, I do not accept Ferawana’s statement in his affidavit that he “obtained a mortgage commitment …subject to appraisal and provision of the leases and tenant information.” BMO clearly stated this was not a commitment. More importantly the provision of tenant information was not a condition precedent. The requirement for the appraisal was in a section of the Paper listed as a “Condition Precedent”. Rent rolls are in a different section under the heading “Reporting Requirements” which are not conditions precedent. Only the Conditions Precedent section states that prior to the initial advance of funds, the Bank shall be satisfied that the listed conditions are met. In addition to rent rolls, the Reporting Requirements include matters such as financial statements to be provided within 120 days from year end and annual evidence of paid real estate taxes: it is clear that the Reporting Requirements are not Conditions Precedent to advancing funds, but reporting information only.

[22] Another potential mortgage from Equitable Bank relied on in the materials sets out a mortgage commitment in a letter dated January 22, 2016 naming an anticipated funding date of February 19, 2016, which is well after the committed closing date of January 25. There is a Home Trust Commitment letter dated February 12, 2016 which anticipates a final funding date of February 26, 2016. Again, these are well after the closing date of January 25. This mortgage commitment is conditional on tenancies at the property generating an annual income of $56,820, despite the fact that Ferawana has stated that it was his intention to have no tenants at the property and for his extended family to reside at the property.

[23] Ferawana was not able to obtain financing in time for the 1st or 2nd closing dates. However, I find nothing in the record that indicates that this was due to the failure of the Uracs to meet their obligations under the Agreement of Purchase and Sale, or any reasonably related obligation.

[24] Ferawana raised a number of other allegations in his affidavit and the factum which were not pursued in the oral argument. In his affidavit Ferawana stated that it was his belief that the vendors “were acting in bad faith, in refusing cooperation in providing the necessary information that we needed, to allow access for additional appraisals by lenders, or to agree to give notice to their tenants so that we could obtain residential status for the property and normal financing.”

[25] Regarding the refusal to agree to give notice to tenants so Ferawana could obtain vacant possession, it was a specific term of the Agreement of Purchase and Sale that the buyers assume the tenants.

[26] Ferawana’s affidavit states that when a new mortgage lender requested access to the property to conduct an appraisal the vendors refused to give timely or complete access to the premises, so the commitment could not be obtained before the extended closing date. There is evidence in the record, however, that on January 15, 2016 the vendor’s agent received a request for an appraiser to attend on January 18, and in fact the appraisal inspection did take place on January 18 and full access to the property was provided.

[27] Ferawana in his affidavit made an allegation that the vendors misrepresented the nature of the property in that the 7th unit was not a legal unit and this, he states, proved difficult in obtaining mortgage financing. On this point I find that the Agreement of Purchase and Sale, Schedule B clearly indicated that the seller did not warrant the legality of the studio apartment (the 7th unit).

[28] The Uracs did not lie or knowingly mislead Ferawana about their readiness to close the deal, on the terms that were agreed. Ferawana argues that the court will “readily imply a promise on the part of each party to do all that is necessary to secure the performance of the contract: Bhasin, para. 49. However, those obligations must flow from the contract agreed to by the parties. There was never an indication that the additional information (names and addresses of tenants) was required for financing, or that the purchasers were having difficulty with financing. More importantly, the financing condition was waived. There is an entire agreement clause, and the obligations under the agreement (to close on January 26th) could not be avoided through the superimposition of an implied condition of financing, and then an implied duty to provide information when they were never informed that despite the waiver of financing condition, the Ferawana’s were not ready to close due to a lack of financing, and none of the requests were conveyed as essential or even related to an attempt to secure financing. The vendors met all contractual requirements on their part. In waiving the financing condition and refusing to pursue the pre-approved mortgage, Ferawana assumed the risk of failing to secure financing.

[29] The duty of good faith, or honest performance, cannot be used to imply a condition which is contrary to the explicit requirements in the written contract, and was never conveyed to the vendors.

“Time of the Essence” Argument

[30] Ferawana also states that the Uracs were not entitled to rely on the “time is of the essence” clause in refusing the extension of the January 29th closing date, and treating the contract as at an end. Ferawana states that where a party is responsible for the late performance of the other party, she cannot rely on the time of the essence clause: Walker v. Jones, 2008 CarswellOnt 5518, [2008] O.J. No. 3687 (Sup. Ct.). Ferawana states that the purchaser was not ready to close “as a sole result of late delivery of tenant information which necessitated the purchaser to go to a secondary lender,” whether or not the venders knew of the issue. I find on the facts that this is not the case, as set out above. The delay in securing financing was not the responsibility of the vendor, or due to the actions of the vendor.

[31] A vendor cannot take advantage of its own default in the performance of contractual obligations. If there is an undertaking to discharge a mortgage, for example, the vendor must request the discharge from the bank. In this case, there was no contractual obligation on the vendor, as the purchasers waived the financing condition. There was no express or implied promise or obligation on the vendors and Ferawana has not established that the provision of tenant name and address information was the cause of the failure to secure financing in a timely manner in any event.

Forfeiture of Deposit

[32] The vendors were ready to close; the purchasers were not. Where the agreement is silent, a purchaser in default of an Agreement of Purchase and Sale is not entitled to the return of his or her deposit, and the courts will only award relief from forfeiture of the purchaser’s deposit where it is established that the sum is out of all proportion to the losses suffered, and that it would be unconscionable for the vendor to retain the money: Iyer v. Pleasant Developments Inc., 2006 CarswellOnt 2050, 210 O.A.C. 90 (Div. Ct.) at paras. 8-9, 13-14; J. E. R. Harrison Estates Ltd. v. 1205458 Ontario Ltd., 2003 CarswellOnt 2127, 172 O.A.C. 238 (C.A.) at para. 20.

[33] The purchaser conceded that they were not in a position to contest the forfeiture of deposit, and did not argue disproportionality or unconscionability. In the result, I direct that the deposit be paid to the vendors.

Costs

[34] The vendors were entirely successful on Urac Application and on the Ferawana application. The vendors made an offer to settle the litigation for a return of the $45,000 deposit.

[35] The statutory framework governing costs is set out in the Courts of Justice Act and the Rules of Civil Procedure. Fixing of costs is a discretionary decision under s.131 of the Courts of Justice Act, and is to be exercised with reference to factors listed in Rule 57.01 of the Rules of Civil Procedure.

[36] These include the principle of indemnity for the successful party and the concept of proportionality which includes the expectations of the unsuccessful party, the amount claimed and recovered, and the importance and complexity of the issues. Rule 57.01(1) also directs attention to the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding, and whether any step in the proceeding was improper, vexatious or unnecessary.

[37] Rule 1.04(1.1) of the Rules of Civil Procedure requires the court to consider proportionality, as orders are to be proportionate to the importance and complexity of the issues and to the amount involved in the proceeding, thus reinforcing the principles set out in Rule 57.01(1). Ultimately, the court is to determine what is “fair and reasonable” in fixing costs, with a view to balancing compensation of the successful party with the goal of fostering access to justice, rather than reflect the amount of actual costs incurred by the successful litigant: Boucher v Public Accountants Council (Ontario) at paras. 26 and 37-38.

[38] I have reviewed the costs outline/bill of costs for both parties. The Uracs claim $31,832.10 on a partial indemnity basis, $37,000 on a mixed partial and substantial indemnity basis, and Ferawana’s Bill of Costs is $15,118. Taking into account all of the circumstances, I award the Uracs costs in the amount of $30,000.00, on a partial indemnity basis, fixed and payable within 30 days.

Kristjanson J. Date: January 27, 2017