ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-11-441357
DATE: 20140528
BETWEEN:
MICHAEL VARAJAO
Plaintiff/Defendant by Counterclaim
– and –
SAMJANEH AZISH, MOHAMMAD
REZA ESKANDARI DOROSTKAR also
known as MOHAMMAD REZA
ESKANDARI, and KINGSBURY
REALTY LTD., carrying on business as
ROYAL LEPAGE KINGSBURY REALTY
Defendants/Plaintiffs by Counterclaim
Scott A. Rosen, for the
Plaintiff/Defendant by Counterclaim
Hedy L. Epstein, for the
Defendants/Plaintiffs by Counterclaim
Samjaneh Azish and Mohammad Reza
Eskandari Dorostkar also known as
Mohammad Reza Eskandari
HEARD: May 13, 14, 15, 2014
CHIAPPETTA J.
Overview
[1] The individual Defendants, Samjaneh Azish and Mohammad Reza Eskandari Dorostkar (“the purchasers”) and the Plaintiff, Michael Varajao (“Michael” or “the vendor”), entered into a written Agreement of Purchase and Sale (the “APS”), dated April 12, 2011, to purchase the residential property known municipally as 42 Maryvale Crescent, Richmond Hill, Ontario, (“the property”) for $2.9 million. The purchasers paid a deposit in the amount of $75,000 to the corporate Defendant, Kingsbury Realty Ltd. c.o.b. as Royal LePage Kingsbury Realty (“Kingsbury”) in accordance with the requirements of the APS. The transaction did not close.
[2] The question before the court is, who is entitled to the deposit monies.
[3] For the reasons set out below, I conclude that the purchasers forfeited the deposit monies. The vendor is entitled to the $75,000 being held in trust by Kingsbury.
Background
[4] The APS provided for a closing date of July 30, 2011. This was a Saturday. Real estate registrations cannot be made on Saturdays in Ontario.
[5] The purchasers retained Ms. Elham Moaveni (“Moaveni”) as their real estate lawyer on or about July 8, 2011 and she was instructed to close the transaction. In or about mid-July, Moaveni attempted to conduct a title search of the property, but was unable to do so as there was a “no PIN dealings” indicator on title.
[6] On July 27, 2011, Moaveni obtained an abstract of title for the property from the land registry office for York Region.
[7] The APS obliged that the purchasers’ search of title and requisitions would be provided by June 30, 2011.
[8] Neither party demonstrated it was ready, willing, or able to close the transaction on July 30, 2011, which was the closing date set out in the APS. Moreover, as noted above, this was a Saturday and real estate registrations cannot be made on Saturdays in Ontario.
[9] July 30, 2011 came and went. The parties did not negotiate, discuss, or agree to a different closing date for the transaction. Both parties, however, maintained their intention and desire to close the transaction.
[10] August 1, 2011 was a Civic Holiday in Ontario.
[11] On August 2, 2011, the vendor’s real estate lawyer, Mr. Paul Mand (“Mand”), sent Moaveni a copy of the proposed application to address all issues surrounding title to the property. He advised that the application would be registered on August 3, 2011.
[12] On August 3, 2011, Mand provided Moaveni with the registered application based on an order of Justice Wilson (the “Order”), dated July 22, 2011, which according to Mand, “effectively resolves all issues on title”.
[13] As of August 3, 2011, both parties maintained their intention and desire to close the transaction, although no closing date had been agreed or chosen.
[14] On August 4, 2011, Moaveni met with the purchasers to review the Order and the registered application provided by Mand. Moaveni’s testimony is that she advised her clients that they had two choices. They could resile from the transaction as the vendor was in breach of the APS or they could wait to close the transaction which, in her opinion, could take up to 40 days given the 30 day appeal period applicable to the Order.
[15] On the same day, for the first time since the expiry of the contractual closing date, the purchasers advised the vendor that they did not intend to close the transaction. In an e-mail from Moaveni to Mand on August 4, 2011 at 1:15 p.m., Moaveni wrote, “your client is in breach of the Agreement of Purchase and Sale and he is no longer interested in closing the deal”. Moaveni confirmed in testimony that what she meant by this e-mail was that the vendor was in breach of the APS and the purchasers, therefore, did not intend to close the transaction.
[16] The purchasers through Moaveni requested a mutual full and final release from the APS.
[17] On August 8, 2011, Mand wrote to Moaveni denying that the vendor was in breach of the APS and confirmed that the APS remained in existence, although time is not of the essence. He wrote, “the vendor is entitled to choose a reasonable new closing date and make time of essence again”. The vendor chose August 15, 2011 as the new closing date and advised the purchasers that it would make tender on that date.
[18] August 15, 2011 came and went without the vendor’s tender.
[19] On August 29, October 7, and October 11, 2011, Moaveni wrote to Mand to follow up on the August 4, 2011 request for a mutual full and final release from the APS.
[20] On October 19, 2011, Moaveni wrote again to Mand and this time threatened to report him to the Law Society of Upper Canada if he failed to respond within the next 48 hours.
[21] On October 21, 2011, Mand wrote to Moaveni. He repeated the position of the vendor that since neither party was able to demonstrate their ability to complete the transaction on July 30, 2011 nor August 15, 2011, either party is free to elect a new closing date upon reasonable notice. He again gave notice of an intended tender and appointed October 28, 2011 as a new closing date to re-establish time of the essence.
[22] On October 28, 2011, the vendor tendered upon the purchasers, which involved providing closing documents to the purchasers.
[23] On October 31, 2011, Moaveni advised Mand that she had sent back the tendering package unopened because “your tender is too late and arbitrary”.
Analysis
[24] The evidence is clear that on the contractual closing date of July 30, 2011 neither party was ready to complete the transaction and neither party tendered upon the other. The closing date came and went with neither party performing its obligations. Further, it is clear that for a time after the expiry of the contractual closing date both parties intended to eventually complete the transaction, although a new closing date was neither agreed nor chosen. This intention changed for the purchasers on August 4, 2011 when they decided not to proceed with the transaction. Their reason for doing so was that, in their opinion, the vendor was in breach of the APS. Therefore, they wanted their deposit back.
[25] The problem with the purchasers’ position is that as of August 4, 2011, the vendor was not in breach of the APS. It matters not that as of August 4, 2011 the vendor may not have been able to deliver clear title to the property. A new closing date had yet to be agreed or chosen for the transaction. The obligation of the vendor is to provide title at closing: see Halsbury’s Laws of Canada: Real Property, 1st ed. (Markham, Ontario: LexisNexis, 2012) at 372.
[26] As of July 30, 2011, the APS remained a live contract between the parties. Although neither party was ready to close on the contractual date for closing, this did not put an end to the contract. It remained open to either party to re-establish time of the essence and set a new date for closing: see King v. Urban & Country Transport Ltd. (1973), 1973 740 (ON CA), 1 O.R. (2d) 449 (C.A.), at pp. 454, 456.
[27] In a typical case one would have expected that one party would have notified the other as to a reasonable new closing date for the transaction. The Order affecting title was subject to an appeal and, at least on its surface, a future court attendance. Upon discussion, a closing date could have been chosen that spoke to this issue in the best interests of the parties.
[28] This, however, is not a typical case. Upon receipt of the Order on August 4, 2011 by the purchasers, there were no discussions between the parties about (i) setting a reasonable new closing date; (ii) the effect of the Order on title; or (iii) the potential for an appeal of the Order. Rather, the purchasers unilaterally decided to opt out of their contractual obligations. This resulted in the purchasers terminating the APS without having set a new closing date and without having reinstated time of the essence. In doing so the purchasers breached the APS: see Domicile Developments Inc. v. MacTavish (1999), 1999 3738 (ON CA), 45 O.R. (3d) 302 (C.A.), at p. 307.
[29] The purchasers submit that as of August 4, 2011 they were not able to set a new closing date and reinstate time of the essence because they had insufficient information from the vendor regarding the required requisition funds. I do not accept this explanation. Mr. Dorostkar, one of the purchasers, testified that he believed the required mortgage funds remained available. The purchasers could have made efforts to estimate the amount of the funds required and to requisition funds to Moaveni’s trust account on the proposed new closing date to demonstrate a willingness to close the transaction. The funds could have remained only for the day of closing so as to not create generous interest.
[30] The evidence demonstrates, rather, that the purchasers did not choose a new closing date because as of August 4, 2011 the purchasers chose not to proceed with the transaction. Upon receipt of the Order, the purchasers did not request a statement of adjustments from the vendor or approach their mortgage lenders to reinstate funds. Their failure to set a new closing date did not flow from a lack of information from the vendor, but rather from their decision to repudiate the APS and not to proceed with their contractual obligations.
[31] I conclude, therefore, that the purchasers repudiated the APS on August 4, 2011 when they terminated the transaction.
[32] When parties to a real estate transaction are not ready, willing, or able to close on the contractual closing date and do not agree on a new closing date, one party could reasonably set a new date for closing and tender accordingly upon the other. If the other party is unable to close on the chosen date, the other party forfeits its deposit monies at issue and the party who tendered is entitled to the deposit monies.
[33] In this case the vendor did not accept the purchasers’ repudiation and instead restored time of the essence by setting October 28, 2011 as the new closing date and tendered correctly on October 28, 2011. The tender was refused by the purchasers. At that point, the APS was officially at an end: see Justice Perell, “Tender” in Practice Gems: Best Practices for Tendering in Real Estate Transactions (Toronto: The Law Society of Upper Canada, 2009). Further, the purchasers had forfeited the deposit monies to the vendor.
[34] The purchasers take issue with the vendor’s steps in choosing a new closing date and ask that the court find the tender improper. It is submitted that August 15, 2011 was the first date chosen by the vendor as the new closing date, but the date came and went without any action or communication by the vendor. It is also submitted that the vendor then chose October 28, 2011 as a new closing date only after Moaveni threatened to report Mand to the Law Society for failure to respond to her regarding the mutual release. The purchasers submit that this new closing date was too far past the original closing date of July 30, 2011 to be reasonable.
[35] In the circumstances of this case, I cannot agree that the timing of vendor’s tender or the vendor’s actions were unreasonable. Mr. Dorostkar’s testimony was clear: as of August 4, 2011, the purchasers had no intention to complete the transaction, which was the case independent of the timing of the vendor’s tender. Moreover, the evidence demonstrates that from August 4, 2011 through to October 27, 2011, the vendor was engaged in clearing title to the property. When the appeal period of the Order expired August 22, 2011, a second order was obtained on September 14, 2011. Also a construction lien registered on title was deleted on October 27, 2011. The vendor re-established time of essence for a closing date when title was clear and its obligations under the APS could be fulfilled.
[36] The purchasers also ask the court to find that the vendor engaged in bad faith during this transaction. It is submitted that the vendor never really intended to close and the court is asked to consider the following facts: Mand failed to return Moaveni’s calls and wrote self-serving letters; there was no disclosure of the issues with title leading up to the Order until August 3, 2011 and no disclosure of the expired construction lien on title; the vendor did not provide a statement of adjustments until October 28, 2011; and the vendor did not make good on its undertaking as set out in the APS to replace the windows in the swimming pool area before closing.
[37] There is no question that the parties would have been better served by professional communications between Moaveni and Mand. However, blame for this unfortunate failure does not rest solely with Mand. The evidence does not demonstrate a lack of desire by the vendor to close or efforts on its behalf to sabotage a closing. Replacing the windows would not have prevented a closing in the normal course. I find no evidence of bad faith on behalf of the vendor.
[38] Finally, the purchasers seek relief from forfeiture. It is submitted that since the vendor sold the property for $3.25 million on February 27, 2012, allowing the vendor to also keep the purchasers’ deposit would amount to a windfall.
[39] Before relief from forfeiture can be granted, it must be established that the sum must be out of all proportion to the damage suffered and secondly, it would be unconscionable for the vendor to retain the money.
[40] The vendor did not suffer damages as it was able to sell the property for a higher amount than the amount the purchasers would have paid. As noted above, the parties could have communicated better. It would have been helpful if Mand responded to Moevani’s letters post August 29, 2011 and explained the vendor’s continued intention to close the transaction and the ongoing efforts of the vendor to clear title. This failure however, does not amount to a finding of unconscionability. The vendor did not act unconscionably or in bad faith. Rather, it worked, albeit without disclosure, to clear title and re-established time of the essence once title was cleared. The purchasers breached the APS effective August 4, 2011. For these reasons, the purchasers are not entitled to the equitable remedy of relief from forfeiture.
Disposition
[41] For reasons set out above, the deposit monies of $75,000 made by the purchasers in furtherance to the APS are forfeited to the vendor. The Defendant Kingsbury is to release the deposit monies it holds in trust plus interest to the Plaintiff forthwith.
Costs
[42] The parties are encouraged to agree on an appropriate cost award for this matter. If the parties are unable to agree I will receive written submissions of not more than two pages first by the Plaintiff within 30 days and then by the Defendants within 30 days thereafter.
CHIAPPETTA J.
Released: May 28, 2014
COURT FILE NO.: CV-11-441357
DATE: 20140528
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL VARAJAO
Plaintiff/Defendant by Counterclaim
– and –
SAMJANEH AZISH, MOHAMMAD
REZA ESKANDARI DOROSTKAR also
known as MOHAMMAD REZA
ESKANDARI, and KINGSBURY
REALTY LTD., carrying on business as
ROYAL LEPAGE KINGSBURY REALTY
Defendants/Plaintiffs by Counterclaim
REASONS FOR JUDGMENT
CHIAPPETTA J.
Released: May 28, 2014