ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-11-439657
DATE: 20130327

BETWEEN:

Brenda Thomas

Applicant

– and –

Sonia Carreno and Simon Davidson Jennings

Respondents

Bruce N. Baron, for the Applicant

Heidi Rubin and Adrienne Lei, for the Respondents

HEARD: February 20, 2013

lEDERMAN J.

NATURE OF APPLICATION

[1] The Applicant entered into an Agreement of Purchase and Sale (the “Agreement”) dated June 13, 2011, with the Respondents with respect to a residential property in the City of Toronto. The purchase price was $1,510,000.00. The Applicant was the purchaser and the Respondents were the vendors. Closing was to take place by 6 p.m. on July 8, 2011. The Applicant paid a deposit of $100,000.00 to be held in trust pending completion or termination of the Agreement.

[2] The transaction did not close and the Applicant seeks the return of the deposit together with incidental damages.

THE OPEN BUILDING PERMIT

[3] Shortly after entering into the Agreement, the Applicant discovered the existence of an open building permit in respect of some construction to the property that took place in 2007.

[4] The Applicant’s lawyer, Maureen Galea (“Galea”) sent a letter on June 21, 2011 to the Respondents’ lawyer Roman Zarowsky (“Zarowsky”) advising him of the open building permit and that it would be necessary to have the permit signed off on or before closing.

[5] Galea received no response to her letter and on June 28, 2011, she sent a Requisition letter to Zarowsky requiring among other things “production and delivery of a final building inspection report from the City of Toronto which closes the outstanding building permit, on or before closing”.

[6] On June 30, 2011, Zarowsky advised Galea that he would follow up with his clients regarding the open building permit. Once the Respondents became aware of the problem, they promptly took steps to close the permit but were not successful in this regard.

[7] On July 4, 2011, Zarowsky left Galea a voice mail message “indicating that he felt that the building permit was a title insurance issue”. And that his clients were “working like crazy to try and close [the permit]”.

[8] Clause 10 of the Agreement provides as follows:

TITLE: Provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement and save and except for (a) any registered restrictions or covenants that run with the land providing that such are complied with; (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion as evidenced by a letter from the relevant municipality or regulated utility; (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and (d) any easements for drainage, storm or sanitary sewers, public utility lines, telephone lines, cable television lines or other services which do not materially affect the use of the property. If within the specified times referred to in paragraph 8 any valid objection to title or to any outstanding work order or deficiency notice, or to the fact the said present use may not lawfully be continued, or that the principal building may not be insured against risk of fire is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objection so made by such day and except for any objection going to the root of the title, Buyer shall be conclusively deemed to have accepted Seller’s title to the property. [Emphasis added].

CLOSING DAY - JULY 8, 2011

[9] On July 8, 2011, closing day, the building permit had not been closed. The Applicant took the position that she was not willing to close the transaction if the building permit remained open.

[10] A number of faxed letters were exchanged between Zarowsky and Galea that day.

[11] The first was a letter at 11:51 a.m. from Zarowsky confirming that the outstanding permit was not resolved but that his “clients are working diligently to try and clear the outstanding permit issue.”

[12] With regard to the closing that was scheduled that day, Zarowsky indicated that his clients were “ready, willing and able to complete the transaction today with your client taking title subject to the outstanding permit”. He went on to say, alternatively, that his clients were open to a short extension of the closing date, suggesting one week, to determine whether or not the permit can be closed with the property in its current state; alternatively, that if the purchaser was not agreeable to either closing that day or an extension, that the Agreement provides that the contract can be terminated, a mutual release signed, and the deposit returned to the purchaser. He went on to state that under the circumstances a short extension would be the best option for all parties.

[13] By return fax at 1:18 p.m., Galea advised Zarowsky that the purchaser was unwilling to accept title while the building permit remained open, that she was not prepared to extend the closing date beyond July 8, 2011 and that pursuant to the terms of the Agreement, her client was electing to terminate the contract. Galea requested a mutual release be signed and the return of the Applicant’s deposit.

[14] At 1:55 p.m. Zarowksy responded and stated that the Respondents were confident that the permit could be closed promptly as all the work on the house was done correctly and appropriate inspections had in fact been conducted and that the matter could likely be resolved in the next few days. Further, he advised that the Respondents were also open to a substantial holdback pending closing of the permit issue to demonstrate their good faith. He stated that “although the vendors respected the purchaser’s right to terminate the transaction, they would like to proceed with the closing …”. Zarowsky asked Galea to confirm whether or not the purchaser is interested in reconsidering her decision and proceeding with the closing the following week on the basis that the permit would be closed by the City.

[15] In addition to taking attempts to see if the open building permit could be closed, Zarowsky and his clients continued to work towards closing the sale by contacting Stewart Title Guaranty Company (“Stewart Title”) to see if it was prepared to insure over the open permit in accordance with paragraph 10 of the Agreement. Susan Kee, a lawyer and underwriter at Stewart Title, who had routinely dealt with Zarowksy, was prepared to provide title insurance to the Applicant if Zarowsky undertook to hold back $100,000.00 from the proceeds of sale pending the closure of the building permit and the open permit was closed in a reasonable time.

[16] At 3:55 p.m. Zarowsky faxed a letter to Galea advising her that the Respondents were in a position to close indicating that Stewart Title was prepared to provide title insurance for the purchaser over the permit issue. The letter in full reads as follows:

Further to my letter to you earlier this afternoon, my clients advise that they would like to proceed with the closing and they are in a position to do so. I attach copies of the discharge statements for your reference. I have looked more closely at the Agreement of Purchase and Sale and in particular paragraph 10. Although there is an outstanding permit, this is not in fact a work order, nor will it is to keep your client from occupying the property. My clients are prepared to authorize me to hold back a substantial amount of money in Trust pending the closing of the subject permit. I have also spoken with Susan Kee at Stewart Title Guaranty Company who has indicated that her company would be prepared to provide title insurance for the purchaser and title insure over the permit issue. In light of this, it is my position that purchaser is not at liberty unilaterally to terminate the Agreement of Purchase and Sale. You can contact Stewart Title at 416-307-3300 to further discuss this. I do not believe that my clients need to sign the mutual release and/or necessarily return the deposit.

I suggest we put the matter over to Monday, July 11, 2011 to determine best how to proceed. Thank you.

[17] Although Zarowsky’s 3:55 p.m. letter had been received by Galea’s fax machine, for some reason she did not see it. She stated that she had not been expecting this letter because Zarowsky had already twice confirmed in writing that same day that the vendors respected the purchaser’s right to terminate the Agreement. Galea concluded that the deal was dead and turned her attention to other closings taking place that day. Galea did not become aware of the 3:55 p.m. fax from Zarowsky until after 6:00 p.m. that evening.

[18] Unaware of the 3:55 p.m. fax from Zarowsky, Galea faxed a letter to Zarowsky at 4:01 p.m. repeating that her client was not willing to accept title to the property while the building permit remained open and that she was not prepared to extend the closing date beyond that day. She stated that her client was within her rights pursuant to the Agreement to terminate and that the existing Agreement would in fact be terminated as of 6:00 p.m., July 8, 2011.

[19] As a result, the transaction did not close by 6:00 p.m. on July 8, 2011. Subsequently, the Applicant required from Zarowsky the return of her deposit plus $3,100.00 of wasted expenses.

[20] On July 19, 2011, Zarowsky wrote Galea and advised that the building permit was closed and that the Respondents were still ready and willing to close. By letter dated July 21, 2011, the Applicant confirmed that she had entered into a new Agreement of Purchase and Sale for a new home and was proceeding to issue an application to the Court for the return of her deposit.

POSITION OF THE APPLICANT/PURCHASER

The Applicant submits that:

(1) the open permit constitutes a valid objection to title;

(2) the Respondents failed to obtain title insurance as required by the Agreement of Purchase and Sale;

(3) the Respondents failed to demonstrate that they were ready, willing and able to close;

(4) the Respondents are estopped from compelling the Applicant to close;

(5) the Respondents waived any right to compel the Applicant to close.

WHETHER AN OPEN BUILDING PERMIT CONSTITUTES A VALID OBJECTION TO TITLE

[21] The Respondents submit that an open building permit does not go to the root of title, that it is just a minor defect and that they are able to convey substantially what the purchaser contracted for.

[22] From the evidence it would appear that the building permit related to a fairly substantial renovation and, thus, the potential risk and exposure to the Applicant was significant. The City could have imposed extremely onerous work orders which certainly would affect the Applicant’s use and enjoyment of the property. The Applicant would be subject to the possibility of facing significant remedial construction and possible litigation.

[23] In the face of an open permit, the property remains subject to the possibility of a work order. In this way, the Applicant submits that an open permit is a precursor to a work order and is therefore a cloud on title.

[24] Whether an open permit can be legally characterized as going to the root of title, in the circumstances of this case in accordance with paragraph 10 of the Agreement and the expert evidence filed, title insurance is an acceptable solution to an outstanding issue such as an open building permit or even a work order or a deficiency notice. Both Zarowsky and Galea assumed that could be a solution.

[25] The cases of Royt v. Goldenberg [2006] O.J. No. 3489 (SCJ) and Remlinger v. Marcoux (2009) (Court File CV-09-00383440-000) (Ont. SCJ), unreported decision) suggest that a requisition regarding matters such as an open building permit can be satisfactorily answered by a commitment to provide title insurance as contemplated by the Agreement of Purchase and Sale.

[26] On the basis of these decisions, the question then becomes whether the vendors failed to obtain title insurance as required by the Agreement.

OBLIGATION TO OBTAIN TITLE INSURANCE

[27] The Applicant submits that the Respondents did not comply with paragraph 10 of the Agreement. She submits that it is incumbent on the vendors to obtain the insurance policy in the purchaser’s name and at the vendors’ cost. At a minimum, counsel for the Applicant submits that Zarowsky should have advised Galea that:

a) he has arranged for title insurance;

b) the Applicant will pay for it;

c) has provided a draft title policy; and

d) undertake, as required by Stewart Title to hold back $100,000 from the sale proceeds to ensure work required by the permit was completed and to close the permit in a reasonable time after closing.

[28] The Applicant submits that what Zarowsky did fell short of this obligation and the requisition was not satisfied.

[29] As to the vendors’ obligation “to obtain” title insurance, according to the evidence of the expert Louis Radomsky and the evidence of Susan Kee (“Kee”) of Stewart Title, Zarowsky was not required to purchase the insurance policy to “obtain” title insurance. It was sufficient for Zarowsky to secure a commitment from Stewart Title to insure over the open building permit. That is what he did and communicated that commitment to the Applicant’s lawyer, Galea. According to Kee, it would not have been possible for Zarowsky in any event to purchase a policy without the co-operation and authorization of the Applicant/policy holder. In other words, it was for the purchaser to order it. Kee confirmed that in order to obtain a Stewart Title insurance policy, the purchaser’s lawyer must provide the requisite information concerning the purchaser’s transaction to allow the order to be processed and if she had been contacted, Stewart Title could have provided the policy in minutes.

[30] Accordingly, I find that the vendors did in fact “obtain” title insurance.

[31] As for the failure by Zarowsky to communicate to Galea that title insurance is at the expense of the vendors, that was not necessary as it is clearly spelled out as a term of the Agreement in paragraph 10.

[32] In order to obtain a draft policy, it was necessary for Galea to merely telephone Kee who would then provide such a draft policy. Galea had dealt with Stewart Title before and generally was familiar with the boiler plate of a title insurance policy. The only review that was really necessary of such a draft policy would be the exclusion page which could be canvassed in very short order.

[33] Also, the requisite undertakings were given by Zarowsky as subsequently confirmed in emails with Kee.

[34] Further, Zarowsky stated in his 3:55 p.m. fax to Galea that “my clients are prepared to authorize me to hold back a substantial amount of money in Trust pending the closing of the subject permit”.

[35] Of note is the fact that it wouldn’t have made any difference if a draft policy was attached to the fax sent by Zarowsky at 3:55 p.m. because Galea did not see it until after 6 p.m.

[36] Counsel for the Applicant submits that Galea was not monitoring the fax machine by reason of the fact that she was led to believe from earlier letters from Zarowsky that the deal was dead and therefore she was not paying any further attention to this matter. Moreover, the Applicant submits that it was just too late in the day for Galea to satisfy herself about the coverage to obtain instructions.

[37] The fact is that Galea clearly stated in her 4:01 p.m. letter that the Agreement will terminate at 6 p.m. that day. Accordingly, she had a duty to monitor that situation until the deadline and not just assume that nothing further could or would be done.

[38] Kee stated that the clarification of coverage and the purchase of the title insurance could have been finalized by way of a telephone call within a few minutes. Having sent her 4:01 p.m. letter, Galea thought the matter was over and deliberately let the clock run out; but in fact it was resurrected and title insurance could have been obtained in time.

READINESS TO CLOSE

[39] The vendors had repeatedly indicated their readiness and willingness to close in Zarowsky’s correspondence. Galea asserted that she had not received the signed closing documents or the keys to the house from Zarowsky. However, she had been provided with a draft Statement of Adjustments. The requisitions had all been answered and all that was left was for Zarowsky to courier or fax the closing documents and arrange to provide keys to the Applicant. There was sufficient time, although brief, to complete the transaction in time or to close the transaction after 5 p.m. and to register the Transfer the next day.

[40] Until 6 p.m., the Agreement was in full force and effect, and the parties had a duty to act in good faith and were required to do what was necessary to fulfill their obligations under it. Once the vendors had obtained a commitment for title insurance and offered to provide title insurance with reference to paragraph 10 of the Agreement, there was an obligation on the Applicant to follow that up and order the insurance. By prematurely ignoring the matter after 4:01 p.m. there was a failure to comply with the duty to continue to carry out the terms of the Agreement and to take necessary steps to act in good faith to close the transaction.

[41] Both lawyers, being busy with other transactions that were closing, appear to have left this matter to the last minute; however, there was an obligation on both sides to act in good faith and do what was necessary within the time frame set out by the Agreement of Purchase and Sale.

[42] The concept of title insurance was not new to counsel for either the Applicant or the vendors. Galea had in fact proactively explored the possibility of obtaining title insurance through First Canadian Title Insurance Company Ltd. (“FCT”) at an earlier time in the transaction when the open permit was first discovered but was told that FCT would not provide title insurance in those circumstances. Both Zarowksy and Galea in fact had discussions about title insurance being a possible avenue out of the difficulty. So, even though the prospect of title insurance from Stewart Title arose at the last minute, there nevertheless was an obligation to pursue this matter until the very end until 6 p.m. that day.

[43] Nor do the doctrines of estoppel or waiver come into play. In his correspondence, Zarowksy was offering various solutions to the problem. The one that he clearly preferred was that there be an extension of the closing to allow for resolution by closing the open permit in a matter of days. Galea made it clear that the Applicant/purchaser was not prepared to extend and that the Agreement would terminate in accordance with its terms by 6 p.m. She obviously was confident that no solution would be found before that time and Zarowsky himself admitted that if that were so, the Applicant was free to terminate the Agreement, have a release signed and have the deposit returned. Galea stated that because she thought the matter was over, she turned her attention to the closing of other transaction. Galea was proved wrong as it turned out. There is nothing in Zarowsky’s letters that would give rise to either estoppel or waiver.

CONCLUSION

[44] It is unfortunate that the events unfolded as they did on the day of closing. However, the Applicant was not entitled to terminate the Agreement once the vendors obtained a commitment for title insurance and offered to provide it in accordance with paragraph 10 of the Agreement. As there has been a breach of the Agreement, the Applicant is disentitled from recovering the deposit monies. The application is therefore dismissed.

[45] If the parties cannot otherwise agree they may make written submissions as to costs within 30 days.

Lederman J.

Released: March 27, 2013

COURT FILE NO.: CV-11-439657
DATE: 20130327

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Brenda Thomas

Applicant

– and –

Sonia Carreno and Simon Davidson Jennings

Respondents

REASONS FOR JUDGMENT

Lederman J.

Released: March 27, 2013