Jesan Real Estate Ltd. v. Doyle, 2020 ONCA 714
COURT OF APPEAL FOR ONTARIO
CITATION: Jesan Real Estate Ltd. v. Doyle, 2020 ONCA 714
DATE: 20201110
DOCKET: C67768
Feldman, Fairburn and Nordheimer JJ.A.
BETWEEN
Jesan Real Estate Ltd.
Applicant (Appellant)
and
Sean Doyle, John Koutsoukos, Deena Koutsoukos and Anthy Koutsoukos
Respondents (Respondent)
Pathik Baxi, for the appellant
Sean Doyle, acting in person
Heard: in writing
On appeal from the judgment of Justice M.J. Lucille Shaw of the Superior Court of Justice dated November 6, 2019, with reasons reported at 2019 ONSC 6448.
Feldman J.A.:
[1] The appellant, Jesan Real Estate Ltd. (“Jesan”), rented a home to the respondents pursuant to a written Occupancy Agreement (“OA”). The parties also entered into a written Option to Purchase Agreement (“OPA”) whereby the respondents could elect to purchase the property at the end of the term for a fixed price on defined conditions. One of the respondents, Sean Doyle, purported to exercise the option but the attempted exercise was rejected by Jesan. Mr. Doyle and Jesan then entered into an agreement to purchase the property for a higher price, but Mr. Doyle did not complete the purchase on the date set for closing. Mr. Doyle and the other respondents remained in the premises as renters.
[2] Jesan brought an application seeking the following relief: an order that the OA and the OPA are null and void; leave to issue a writ of possession; an order that the deposit paid in respect of the agreement of purchase and sale be forfeited. Only Mr. Doyle responded to the application. The remaining named respondents, who are all members of Mr. Doyle’s family, did not participate in the hearing.
[3] The application judge dismissed Jesan’s application without addressing the status of the uncompleted agreement of purchase and sale and the tenancy. I would allow the appeal, set aside the order and address the result as set out below.
Background facts
[4] Through the agency of Wayne Muir, a real estate agent acting for all parties, Jesan, acting through Mr. Khan, and the respondents entered into the OA in respect of 25 Napa Valley Crescent on February 17, 2014 for a term of 36 months beginning March 31, 2014 and ending on February 28, 2017. The monthly rent was $2515. On the same day they also entered into the OPA. The intent was that the respondents would rent with a view to purchasing the property.
[5] Under the OPA, the respondents, described as the Occupant, were granted the option to purchase the property at the end of the occupancy agreement, “so long as the Occupant complies with all conditions of the Occupancy Agreement, and, as long as the Occupant is not in default (all outlined in the Occupancy Agreement) for the Purchase Price of…$489,000.00 CDN”
[6] A number of the terms of the OPA are reproduced here as they form the basis for determining the rights of the parties:
TERMS:
(e) Initial Option Deposit will be credited to the Occupant to go toward the down payment upon successful Purchase of the property. The Initial deposit is non refundable. Should the Occupant not exercise their right to Purchase the property, the Occupant shall forfeit this initial deposit in its entirety
(f) Monthly Option Payment credit will be credited back to the Occupant to go toward their down payment upon successful Agreement to purchase the property. Monthly option payment is only credited for months in which payments are made as agreed, on time. Monthly payment option credit will be forfeited for the month in which monthly payment is not made on time. Should the Occupant not exercise his right to purchase the Property, the Occupant forfeits all monthly option payment credits
OPTION DEPOSIT AND MONTHLY CREDITS:
Initial Option Deposit (Non Refundable) at time of signing of this Agreement $20,000.00 held in ReMax Realtron Realty Inc trust account until day of Occupancy when it is to be released to the Owner
Second Option Deposit (Non Refundable) on date of closing/occupancy $ 0.00
Monthly Option Payment Credit (Non Refundable) $375.00
EXERCISE OF OPTION:
The option may be exercised 60 days prior to the end of the term of the Occupancy Agreement unless mutually agreed to accelerate the Option, but not earlier than 2 years and shall be exercised by mailing or personally delivering written notice of intent to purchase to the Owner and by an additional deposit in the amount of $1,000.00 (CDN) One Thousand Dollars payable in Trust to the Owner’s Solicitor.
Notice, if mailed, it shall be registered mail, to the Owner at the address set forth below and shall be deemed to have been given upon the day following the day shown on the post office receipt.
In the event the option is exercised, the Option Deposit shall be credited back to the Occupant. The Monthly Option Payment Credits, if any shall be credited back to the Occupant, for each month the Occupancy Payment has been paid when due. If the Occupancy fee was late for any month, even for one business day, credit will not be given for that month. These funds will only be credited if the option is exercised and the sale of the Property closes. In particular, if the option is not exercised, the Occupant forfeits and the Owner retains all Option Deposits and Credits. If the Occupant is not in breach of contract and the Owner decides to terminate the contract, the Option Deposit shall be credited back to the Occupant. By exercising the option, the Occupant states that their obligation to purchase is unconditional. In particular, the Occupant states that the required financing is in place. The Investor hereby acknowledges that the Occupant is not in default and that this agreement is firm and binding for title transfer to the Occupant and must abide by this agreement.
EXPIRATION OF OPTION
Notice of Intent to purchase may be made at least 90 days before the last day of the term of the Occupancy Agreement. If notice is not received and/or the Property is not purchased, the Option to Purchase expires. Upon expiration, the owner shall be released from all obligations hereunder and all Occupants rights hereunder, legal or equitable shall cease.
EXTENSION OF AGREEMENT:
If financing cannot be obtained on behalf of the Occupant by the designated mortgage team, and the Occupant is not in default, then this Agreement shall continue on a month to month basis for an additional (6) six months with no increase in the Occupancy payment or change in the Monthly Option Payment Credit. The Purchase Price shall however increase at the rate of 0.25% per month. If after these additional (6) six months, the Property still has not closed, then the Monthly Option Payment Credit can, at the option and absolute full discretion of the Owner, be increased. The Purchase Price shall increase at the rate of .3% per month.
NOTICES:
Any notice which either Party may or is required to give, may be given by mailing the same postage prepaid, to Occupant at the Property or to the Owner at the address shown below or at such other places as may be designated by the Parties from time to time.
TIME:
Time shall be of the essence of this Agreement.
[7] According to the OPA, the option to purchase was conditional on the respondents’ compliance with all the conditions of the OA and not being in default. The respondents agreed to pay to the agent an initial non-refundable deposit of $20,000 upon signing the OPA, which was to be released to Jesan on the date of occupancy. If the option was exercised, the initial deposit would be credited to the purchase price as a down payment, together with a non-refundable credit of $375 per month. As a result, the amount of $33,500, paid to Jesan by the end of the lease term, would be credited to the purchase price as a down payment if the option to purchase was exercised. If the option to purchase was not exercised, this sum would be forfeited to Jesan.
[8] The option was to be exercised by registered mail or personal service of a written notice of intent to purchase on Jesan and by an additional deposit of $1000 payable in trust to Jesan’s solicitor. The mailing address was not included in the agreement. The time limits for exercising the option were set out in the OPA.
[9] On February 3, 2017, Mr. Muir emailed an offer to purchase on behalf of Mr. Doyle to Jesan for the agreed price of $489,000. The offer referred to a down payment of $35,000. However, the further $1000 called for in the OPA was not included. Jesan refused to agree to the offer. The application judge found that Mr. Khan did not communicate at that time that the offer did not comply with the OPA, but discussed with Mr. Muir the fact that the property was worth a lot more than the option price. Mr. Muir advised Mr. Doyle to make an offer for more money in order to avoid litigation. Mr. Muir prepared a second offer to purchase which was signed by Mr. Doyle on March 1 and by Mr. Khan on behalf of Jesan on March 7, 2017. The offer was for $550,000, again with $35,000 as the down payment and with the same closing date as the first offer, March 31. Mr. Doyle sent a bank draft on March 3 to Jesan for $1500 “re RTO Final Payment”, with RTO meaning rent to own.
[10] Following acceptance of the second offer, Jesan asked for and received from Mr. Doyle three payments of $375 each because the rent had been late three times over the term, and the OPA provided that late payments would not count toward the down payment.
[11] Mr. Doyle had difficulty arranging financing to close the transaction. Some of the other respondents contacted Jesan and advised that Mr. Doyle wanted to add a family member as a purchaser to facilitate financing. Jesan refused to amend and relied on the time of the essence provision of the agreement of purchase and sale.
[12] Mr. Doyle failed to close on March 31. Instead, on that same day, Mr. Doyle’s lawyer advised Jesan by letter that Mr. Doyle was exercising his right to extend the OPA by six months because he was still arranging financing. The letter alleged that Mr. Doyle’s inability to close was due to Jesan breaching the OPA and increasing the purchase price to $550,000.
[13] In response, Jesan’s lawyer took the position that the February 3 email was not a valid notice of exercising the option to purchase because of a number of non-compliances including: it was not delivered personally or by registered mail; it did not enclose the $1000 deposit; and it was not delivered within 60 days prior to the end of the term of the OA. The letter also stated that the OA term ended on February 28 and that the OPA had expired. In response, Mr. Doyle registered a caution on the property and continued to reside there and pay monthly rent of $2515.
[14] As indicated above, this litigation was commenced by Jesan seeking a declaration that the OA and OPA were null and void and for leave to issue a writ of possession. The respondents did not file a cross-application seeking any relief such as specific performance or relief from forfeiture.
Findings by the application judge
[15] The evidence on the application consisted of an affidavit of Mr. Khan, an affidavit of Mr. Doyle, and the transcripts of the cross-examinations on those affidavits together with the answers to undertakings. The application judge explained that there was conflicting evidence on issues such as whether Mr. Doyle first notified Jesan in December 2016 that he wanted to purchase the property, and whether Jesan communicated in February after the February 3 email with no deposit that Mr. Doyle was in breach of the OPA.
[16] The application judge found that Mr. Doyle first notified Jesan of his intention to exercise the option on February 3, 2017. She also found that Jesan first notified Mr. Doyle by letter dated April 18, 2017, after the second agreement failed to close, that his purported exercise of the option to purchase breached the OPA.
[17] Relying on the Supreme Court of Canada decision in Sail Labrador Ltd. v. Navimar Corp., 1999 CanLII 708 (SCC), [1999] 1 S.C.R. 265 (S.C.C.), the application judge found that the OA and the OPA constituted a bilateral contract, and that the legal result of that characterization was that only “substantial non-performance” of the terms of the contract by Mr. Doyle would be sufficient to disentitle him to performance by Jesan. The application judge defined substantial non-performance as requiring a finding that “Mr. Doyle’s failure in performance substantially deprived Jesan of what was bargained for.”
[18] The application judge considered the effect of the “time is of the essence” clause, and found, based on the parties’ conduct during the term of the lease, that they did not intend time to be of the essence, “or, at the very least, that Jesan acquiesced to delayed payments on multiple occasions.” As examples, the application judge identified: the $20,000 deposit was not paid when the respondents took possession, but after, contrary to the OPA, and Jesan accepted late lease payments by etransfer made more than 120 hours after a cheque was returned for insufficient funds, which was not in accordance with the OA. The application judge concluded that by acquiescing to late occupancy payments and a late deposit, Jesan had waived the time of the essence requirement, and could not rely on the time of the essence provision of the OPA.
[19] The application judge also noted, applying Sail at para. 50, that in this bilateral agreement, there was no provision requiring strict performance that would preclude the application of the substantial non-performance doctrine. She then concluded that Mr. Doyle had substantially complied with the option exercise terms and therefore, with the OPA. She added that if she was in error and the OPA was a unilateral contract, then any non-performance by Mr. Doyle was de minimis and did not amount to a fundamental breach.
[20] The application judge specifically addressed each of the three alleged breaches of the option conditions and found that each one did not amount to substantial non-performance:
The requirement to pay an extra $1000 deposit did not specifically say it had to be paid at the same time the option was exercised. Mr. Doyle paid it on March 3, 2017 as part of the bank draft of $1500 following the agreement on the second offer and it was accepted by Jesan.
Mr. Doyle could not strictly comply with the requirement to serve the notice of exercising the option by mail because no address for service was included in the agreement. The email notice gave functionally clear and unambiguous notice to Jesan with no disadvantage to it. Also, email was not specifically prohibited by the OPA or OA.
The notice served on February 3 was not out of time. There was ambiguity because the OPA provided for both 60 days and 90 days notice, and used the word “may” rather than “must”. Because of the ambiguity, there was no requirement for strict compliance. It was enough for Jesan to receive notice of Mr. Doyle’s intention to exercise the option prior to the end of the term of the OA.
[21] The application judge concluded that Jesan did not accept the first offer, not because of any breach of the OPA in exercising the option to purchase, but because the price was too low. She concluded that the parties were still operating under the OPA because: 1) Mr. Doyle paid $1125 on March 27 to make up the down payment because the three late rental payments under the OA did not count toward the down payment under the OPA; and 2) Mr. Doyle paid the $1500 deposit to satisfy the OPA requirement for a further $1000 deposit upon exercise of the option to purchase.
[22] Based on these findings, the application judge concluded that she did not have to address whether Mr. Doyle was in breach of the March agreement of purchase and sale based on the second offer, whether he had forfeited the $35,000 deposit, or whether he was entitled to an extension of the March 31 closing date. Instead, she found that Jesan failed to comply with its obligation to sell the property for the option price of $489,000 and dismissed the application.
Issues
[23] This appeal raises four issues:
Was Jesan entitled to reject the exercise of the option by Mr. Doyle because his notice did not comply with the OPA?
Was the second agreement a new contract or an extension of the OPA?
Is the deposit of $35,000 to be forfeited to Jesan or is Mr. Doyle entitled to any relief from forfeiture?
Is Jesan entitled to an order for a writ of possession?
Analysis
Issue 1: Was Jesan entitled to reject the exercise of the option by Mr. Doyle because his notice did not comply with the OPA?
[24] The respondents purported to exercise their option to purchase the leased premises, contained in the OPA, by way of an email to Jesan on February 3, 2017. The OPA required the option to be exercised by mail or personal service, and that it be exercised 60 days before the end date of the OA which was February 28, 2017, or up to two years before that date. It also required a further $1000 deposit.
[25] When Jesan did not accept the exercise of the option at the option price of $489,000, Mr. Doyle agreed with Jesan to purchase the leased property for the price of $550,000, but with the same terms as contained in the OPA regarding crediting of the initial down payment of $20,000, plus $375 from each lease payment that had been made on time, plus adding the $1000 deposit plus an additional $500 in order to “round up” the down payment amount to $35,000.
[26] Mr. Doyle failed to close the transaction on the closing date of March 31, 2017. He has remained in the premises paying the same rent as before.
[27] Because the contract is an option to purchase, the application judge referred to the decision of the Supreme Court of Canada in Sail, where the court explained that while an option is often viewed as a unilateral contract where the conditions for exercise must be strictly complied with, if the option is closely linked with another contract between the parties, then it is a bilateral contract which requires only substantial performance of the conditions to be enforceable. However, the substantial non-performance doctrine is always subject to the express terms of the contract. In Sail, at para. 50, the court explained:
Having found that the option in the present case is a clause of the bilateral charter party, it must next be determined whether the parties have expressly provided for literal and strict enforcement of any or all of the terms of this contract. Courts will generally give effect to the parties’ intentions by upholding any clear contractual provisions which provide that the breach of a certain term, no matter how slight, will justify rescission of the entire contract by the non-offending party [Waddams, pp. 400-401; Treitel, pp. 694-95; Lombard North Central plc v. Butterwort, [1987] Q.B. 527 (Eng. C.A.) ]. If the parties have made no such provisions, the bilateral nature of the contract in the present case will require that this Court apply the substantial non-performance doctrine.
[28] Therefore, if the OPA is part of a bilateral agreement, to which the doctrine of substantial non-performance would generally apply, in order to assess whether Mr. Doyle’s non-compliance with the requirements for exercising the option amounted to a breach of the OPA that allowed Jesan to reject the exercise of the option, the court was required to read the OPA to determine its requirements and whether there are any provisions that speak to strict performance of the contract, or, conversely, that allow for some leeway in performance of the contractual obligations.
[29] The application judge found that the OPA was part of a bilateral contract with the OA, and that there was no provision of the contract that required strict performance of its terms. I agree that the OPA is linked to the OA and that the OPA is part of a bilateral contract. However, by finding that no clause in the agreement had the effect of requiring strict performance of the conditions of exercise of the option, the application judge failed to address a number of specific clauses in the OPA that speak to the requirement for strict compliance.
[30] For example, two clauses in the agreement govern the operation of the monthly option credit toward the down payment. The first is under the heading “Terms” subparagraph (f) which provides:
(f) Monthly Option Payment credit will be credited back to the Occupant to go toward their down payment upon successful Agreement to purchase the property. Monthly option payment is only credited for months in which payments are made as agreed, on time. Monthly payment option credit will be forfeited for the month in which monthly payment is not made on time. Should the Occupant not exercise his right to purchase the Property, the Occupant forfeits all monthly option payment credits.
[31] The second is under the heading “Exercise of Option”:
…In the event the option is exercised, the Option Deposit shall be credited back to the Occupant. The Monthly Option Payment Credits, if any shall be credited back to the Occupant, for each month the Occupancy Payment has been paid when due. If the Occupancy fee was late for any month, even for one business day, credit will not be given for that month…. [Emphasis added].
[32] These two provisions make it clear that the monthly option payment of $375.00 would only be credited toward the down payment for each month that the rent was paid on time, and that it would not be credited even if payment was late by only a day. It is indisputable that these provisions speak to strict performance of the monthly credit provision.
[33] Other clauses that also speak to the requirement for strict performance are the two waiver clauses, the time of the essence clause, the entire agreement clause and the severability clause. I will set out the two waiver clauses and the time of the essence clause here:
WAIVER OF CONTRACTUAL RIGHT: The failure of either party to enforce any provision of this Agreement will not be construed as a waiver or limitation of that Party’s right to subsequently enforce and compel strict compliance with every provision of this agreement.
WAIVERS: No failure of the Owner to enforce any term hereof shall be deemed a waiver, nor shall any acceptance of partial payment of monthly Occupancy payment be deemed a waiver of Owner’s right to full amount of refund.
TIME: Time shall be of the essence of this Agreement.
[34] While the application judge briefly discussed the “time is of the essence” clause in the OPA, she concluded that Jesan waived the right to enforce it because it had accepted some late lease payments under the OA and the late $20,000 deposit. In reaching the conclusion that Jesan had waived its right to insist on strict compliance with time requirements in the OPA, the application judge failed to give effect to the two waiver provisions above.
[35] While the standard of review for the interpretation of contracts set out in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, is deferential on issues of fact as well as on the factual aspect of questions of mixed fact and law, the failure to read a disputed contract as a whole is a question of law: Sattva, at paras. 53, 63-64. Since the application judge did not consider the specific clauses in the contract which contradict her findings, and there is no indication that she took them into account when interpreting the contract, she committed an error of law and no deference is owed on appeal: Fuller v. Aphria Inc., 2020 ONCA 403, at para. 50; Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517, 424 D.L.R. (4th) 588, at para. 46, leave to appeal to S.C.C. refused, 38247 (March 28, 2019).
[36] With the whole contract in mind, the court must reconsider the three impugned instances of non-compliance with the conditions for the notice to exercise the option to purchase: 1) the timing; 2) the method of delivery; 3) the $1000 deposit.
(a) Timing of the Notice
[37] The OPA provides under “Exercise of Option” that the option “may be exercised 60 days prior to the end of the term of the [OA] unless mutually agreed to accelerate the Option, but not earlier than 2 years.” Another provision, entitled “Expiration of Option”, provides that “Notice of Intent to purchase may be made at least 90 days before the last day of the term of the [OA]. If notice is not received and/or the property is not purchased, the Option to Purchase expires.”
[38] As noted, the OPA also contains a clause that makes time of the essence. A “time is of the essence” clause is engaged where a time limit is stipulated in a contract. It means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract. Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, at paras. 32-33, leave to appeal refused, [2019] S.C.C.A. No. 55.
[39] Despite the timing requirements, and the time of the essence clause, the application judge concluded that Jesan could not insist on strict compliance with these provisions. She concluded that time was not of the essence because Jesan accepted some late lease payments and a late deposit and had thereby waived the time of the essence requirement. She also found the terms of exercise of the option ambiguous on the issue of timing. She noted that the OPA references both a 60 day and 90 day notice period, and uses the word “may” rather than “must”. Accordingly, “one interpretation”, she stated, “is that the earliest Mr. Doyle could exercise the option was 60 days before the end of the OA term, unless the parties agreed to an earlier date.” [Emphasis added]. She concluded that if Jesan had wanted strict timing compliance, it should have drafted the terms in an unambiguous and internally consistent way.
[40] In my view, the application judge erred in law by effectively reading out the timing requirements of the notice provision. Jesan was entitled to insist on strict compliance with the timely notice requirements of the OPA.
[41] First, Jesan did not waive the time of the essence clause by accepting a late deposit and some late lease payments by etransfer. The application judge’s conclusion to that effect ignores the waiver clauses that state that any non-enforcement of any right under the contract will not be construed as a waiver of strict compliance with the Agreement.
[42] Second, there was no ambiguity in this case. While the agreement contemplates both a 60 day and a 90 day notice, which in some circumstances could create ambiguity, such circumstances did not arise in this case. The notice was given 25 days before the end of the lease term.
[43] The use of the word “may”, rather than “must”, similarly does not create any ambiguity. Mr. Doyle was not required to exercise the option to purchase. But if he did, then it had to be exercised at least 60 days prior to the end of the OA. Moreover, there is no indication that the parties understood the OPA as operating in the manner proffered by the application judge. During cross-examination, Mr. Doyle agreed that the OPA required him to exercise his option to purchase “60 days prior to the end of the term”. He did not suggest that his February 3 notice was in time. Rather, he claimed that he in fact had exercised the option 60 days prior to the end of the OA term – an assertion the application judge considered and rejected in her findings of fact.
[44] As time was of the essence of the agreement and any forgiveness of late payment under the OA could not be construed as a waiver of the requirement of strict compliance with the time of the essence provision, the notice of exercise of the option was not made in a timely manner and was ineffective under the agreement. Jesan was entitled to insist on strict compliance with the timing requirements in the OPA and treat the OPA as terminated when notice was not provided in time. In the context of strict compliance analysis, a notice delivered 35 days late was not de minimis.
(b) Method of Delivery
[45] The “Exercise of Option” clause required that the notice be delivered by registered mail to the address set out in the agreement or by personal service. As no address for Jesan was set out on the agreement, service by registered mail in compliance with the agreement was not possible. However, there was no impediment to personal service. Had the notice by email been delivered on time, an argument could have been made that the email constituted substantial performance of the contract, if it was proved that the notice came to the attention of Jesan. However, because it was delivered out of time, that issue need not be finally decided.
(c) $1000 Deposit
[46] The “Exercise of Option” clause states that the option is to be exercised by a written notice of intent “and by an additional deposit in the amount of $1000.00 (CDN)” payable in trust to the owner’s solicitor. In this case, the amount was paid, not as part of the notice of intention to exercise the option, but later as part of the agreement of purchase and sale on the second offer. Based on what occurred, no deposit was ever paid with the notice of intent.
[47] I disagree with the application judge’s conclusion that the deposit could be paid after the OA had expired because its timing requirement was ambiguous. The “Exercise of Option” clause states that “The option may be exercised 60 days prior to the end of the term of the [OA]…and shall be exercised by mailing or personally delivering written notice of intent to purchase to the owner and by an additional deposit in the amount of $1,000.00 (CDN).” [Emphasis added]. The option is only exercised upon receipt of written notice of intent and a $1000 deposit. Without a deposit paid 60 days before the end of the OA, the option to purchase would expire because it had not been properly exercised.
[48] In any event, even if the timing for the deposit payment is ambiguous, Mr. Doyle was not entitled to pay the deposit anytime, as the application judge’s reasons imply. When an agreement does not expressly reference a time for performance, the law will imply a term that it must be performed within a reasonable time: Ju v. Tahmasebi, 2020 ONCA 383, 447 D.L.R. (4th) 349, at para. 20; Di Millo, at para. 38. Here, the $1500 purportedly satisfying the $1000 OPA deposit requirement was paid on March 3, 2017, after the expiry of the term of the OA. In the circumstances of this case, this could not be payment within a reasonable time.
Conclusion: Issue 1
[49] In my view, the application judge erred in law by failing to analyze the deficiencies in compliance with the conditions of the exercise of the option in the context of the specific contractual requirements of non-waiver and the time of the essence provision. She also made a palpable and overriding error by finding that the payment of the $1000 deposit satisfied the condition of exercise of the option when no deposit of $1000 was paid until a new agreement was reached.
[50] I conclude that in light of the failure by Mr. Doyle to exercise the option in accordance with the requirements of the OPA, Jesan was entitled to reject the notice of intent. Although Jesan’s motivation for rejecting the notice may well have been because of the increase in value of the property, his legal entitlement to take that position was justified only by Mr. Doyle’s failure to comply with the OPA in exercising the option to purchase.
Issue 2: Was the second agreement a new contract or an extension of the OPA?
[51] The agreement of purchase and sale for $550,000 was entered into following Jesan’s rejection of the notice of exercise of the option. That agreement included a deposit of $35,000 which was made up of the same components contemplated by the OPA, but with an additional $500. The application judge viewed the parties’ treatment of this deposit as evidence that the OPA was not null and void. Mr. Doyle tried to exercise his right under the OPA to a six-month extension of the agreement, as if the agreement was made in accordance with and was governed by the OPA. By dismissing Jesan’s application for an order declaring the OPA null and void, the application judge appeared to find that the OPA had not been terminated.
[52] However, in so concluding, the application judge failed to consider the “Expiration of Option” provision of the OPA, which provides that where the option is not exercised, the agreement expires. In this case, Mr. Doyle did not exercise the option in accordance with the conditions of the OPA. As a result, the OPA expired. The agreement of purchase and sale for $550,000 was a new agreement. While it included the same credit for the deposit as Jesan had agreed to in the OPA, that did not have the effect of extending the OPA in contradiction to its express terms. As a result, Mr. Doyle was not entitled to the six-month extension provided in the OPA.
Issue 3: Is the deposit of $35,000 to be forfeited to Jesan or is Mr. Doyle entitled to any relief from forfeiture?
[53] The deposit of $35,000 consisted of the $20,000 initially paid in 2014 and referred to as the Initial Option Deposit in the OPA; $375 per month for 33 months of the lease, plus $375 for three months that had to be made up because of three late lease payments that became disqualified for credit under the terms of the OPA; plus the $1500 extra deposit paid on March 3, 2017.
[54] When a purchaser fails to close an agreement of purchase and sale, the vendor is entitled to retain the deposit regardless of whether he or she suffers a loss, subject to the court’s ability to grant relief from forfeiture: Azzarello v. Shawqi, 2019 ONCA 820, 439 D.L.R. (4th) 127, at paras. 45-47, leave to appeal to S.C.C. refused, 38982 (April 16, 2020):
However, forfeiture is always subject to the equitable remedy of relief from forfeiture. Section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, provides that: “[a] court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.” In Stockloser v. Johnson, [1954] 1 Q.B. 476 (Eng. C.A.), the English Court of Appeal set out the two pronged test that has been followed in Ontario for applying the relief from forfeiture provision: 1) whether the forfeited deposit was out of all proportion to the damages suffered; and 2) whether it would be unconscionable for the seller to retain the deposit: Redstone at para. 15 (para. 47).
[55] In Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282, 137 O.R. (3d) 374, the court stated at para. 25 that “the finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case.” Where there is no gross disproportionality in the size of the deposit, the court must consider other indicia of unconscionability. The list of the indicia of unconscionability is never closed and is context specific. Relevant factors include the gravity of the breach and the conduct of the parties: Redstone, at paras. 29-30.
[56] In order to consider the question whether forfeiture of the deposit is unconscionable, the following facts are relevant:
(a) $20,000 of the deposit was paid as the initial option deposit under the OPA which provides in Term e) that the initial deposit is non-refundable and will be forfeited if the right to purchase is not exercised;
(b) the credits of $375/month from the monthly rental were also credited to the deposit in accordance with the OPA Term f) which provides that if the option is not exercised, then the monthly credits are forfeited;
(c) the amounts paid in March 2017 were the $1500 deposit and the $1125 to replace three monthly credits for months when the rent was paid late;
(d) Jesan suffered no loss as the value of the property had increased;
(e) Jesan did not try to accommodate Mr. Doyle by granting an amendment to help him secure financing, but it is unclear whether that would have made any difference to the outcome.
[57] In my view, it is not unconscionable for Jesan to retain the $20,000 initial deposit and the 33 monthly credits. These amounts had been paid under the OPA, and the respondents had agreed in the OPA that those amounts would be forfeited if the option to purchase was not exercised. While this was a new agreement, I see no basis for finding unconscionability with respect to those amounts.
[58] However, in the circumstances, it would be unconscionable for Jesan to retain the amounts paid in March 2017 to top up the deposit (the $1500 deposit and $1125 monthly credit payments), when Jesan suffered no loss and took no steps to try to facilitate Mr. Doyle securing financing to close the transaction.
Issue 4: Is Jesan entitled to an order for a writ of possession?
[59] The OA provides for a three year lease term ending on February 28, 2017. Under the heading “Applicable Law”, there is a handwritten statement that “This is not a tenancy under the Landlord and Tenant Act of Ontario.” This addition is not initialed.
[60] Regardless of the validity or effectiveness of the handwritten addition, the bigger problem is that the agreement is, in fact, a residential lease governed by the Residential Tenancies Act, 2006, S.O. 2006, c. 17 (“RTA”).[^1] The RTA does not allow contracting out of its provisions: ss.3(1), s.4; Matthews v. Algoma Timberlakes Corp., 2010 ONCA 468, 102 O.R. (3d) 590, at para. 24, leave to appeal refused, [2010] S.C.C.A. No. 369. Although this issue was not addressed by the application judge or referred to by the parties in their factums, the provisions of the RTA regarding security of tenure govern the issue of eviction: see. RTA, Part V. Since the Landlord and Tenant Board has exclusive jurisdiction to determine applications between landlords and tenants under the RTA, Jesan and the respondents must have their possessory rights determined before that Board: ss.168(2).
Conclusion
[61] In the result, I would allow the appeal and set aside the order of the application judge dismissing Jesan’s application. I would grant the application for an order that the OPA is terminated. I would grant the order for forfeiture of $32,375 of the deposit to Jesan and order the balance to be paid to Mr. Doyle. I would not order a writ of possession as that matter must be addressed by the Landlord and Tenant Board if the parties cannot agree. Finally, I would order costs of the appeal to Jesan based on its success on the main issue and substantial success on the forfeiture issue. If the parties cannot agree on the amount of costs, they may each make brief (3 pages) written submissions within four weeks of the release of these reasons.
Released: “K.F.” November 10, 2020
“K. Feldman J.A.”
“I agree. Fairburn J.A.”
“I agree. I.V.B. Nordheimer J.A.”
[^1]: The OA states that the “premises shall be used as a residence” and the OPA further confirms that the agreement is “first and foremost a residential occupancy agreement.”