Editor’s note: Addendum released on April 14, 2015. Original judgment has been corrected with text of addendum appended.
CITATION: Recchia Developments Inc. v. 1059233 Ontario Ltd, 2015 ONSC 2204
COURT FILE NO.: 14/47854
DATE: 2015-04-13
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Recchia Developments Inc.
David J. H. Jackson, for the Applicant
Applicant
- and -
1059233 Ontario Ltd
Casey Vandeputte, for the Respondent
Respondent
HEARD: November 28th and December 3rd, 2014
REASONS FOR JUDGMENT
I. INTRODUCTION
[1] 231 York Road, Dundas, is a double lot in a residential area benefiting from the contours of the panorama of the Dundas Valley. 1059233 Ontario Ltd (105) was the owner. That corporation was owned and controlled by David Stevens, a seasoned real estate lawyer who wanted to develop this property into an 18 unit townhouse project. Stevens retained Edward J. Fothergill, planning consultant, to secure the necessary by-law change to allow for this intensification of density and obtain City of Hamilton approval to the amendment of the official plan. It took in excess of five years before the formal application was submitted November 19th, 2011.
[2] In the months prior to that submission, Stevens had decided to sell the property with its ongoing application. Recchia Developments Ltd (Recchia) controlled by Fernando Recchia was/is an experienced developer, an ideal purchaser. Recchia, as it were, was to step into the shoes of 105 in the development of the site.
[3] The sale between the two entities was completed January 27th, 2012. The ultimate agreement of purchase and sale provided for a sale price of $1,100,000 and included a vendor take back mortgage of $700,000.
[4] The final language of that mortgage take back contemplates a reduction in its face value in the event that “the” application for the townhouse projects was diminished in terms of the number of units.
[5] Although relations between the parties became somewhat strained in the closing moments of the transaction, they obviously both believed in the viability of this development.
II. ISSUES
[6] As happens from time to time in life, the application for redevelopment did not go as well as the parties had hoped. As of the time of this writing, the hope for an 18 unit townhouse appears to have long since evaporated.
[7] The principal issue is how are the terms of the vendor take mortgage to be construed, in light of the fact that the original development plan must be significantly reduced in its scope. Do the terms contemplate a reduction in what is due pursuant to the mortgage? Does the hiatus in producing a reduced plan acceptable to the City create a situation different than that affected by the mortgage reduction?
[8] The answer to these questions determines what is due pursuant to the mortgage (which may be immediately payable given the status of the development application). The amount due determines what the former vendor can seek by means of power of sale proceedings or otherwise. Pending the determination of these issues, 105 was precluded by order of Justice Carpenter-Gunn dated 26th of June 2014, from enforcing its remedies as a mortgagee. On consent counsel agreed that Recchia would pay the minimum interest contemplated under the mortgage.
III. BACKGROUND FACTS
[9] As mentioned in the introduction herein 105 or its principal, in February 2006 commenced the development of its York Road property with an eye to an application. By July 10th, 2007, Ed Fothergill, a registered professional planner, was formally retained. Prior to that a survey of the land had been commissioned, and an architect retained to create the initial design of the townhouse project.
[10] Stevens met with the City Councillor responsible for the property site to drum up support for the project.
[11] Fothergill in accordance with his retainer commenced communicating with various members of the planning department. There were advisory meetings and open houses conducted to which neighbours were invited. Analysis of the percolation rate of the soil, storm water management, grading was prepared. A preliminary site plan review application was submitted. Feedback was received from the City departments, and the Niagara Escarpment Commission. Some time was lost as the Hamilton Official Plan was on appeal to the Ontario Municipal Board (OMB). Finally, as indicated, the formal application was submitted November 19, 2011.
[12] Having decided to sell, Stevens after having fielded various inquiries considered Recchia “the ideal purchaser”. Recchia would take over the application.
[13] The agreement of purchase and sale (APS) contained a due diligence condition which was extended by at least four amendments, and consequently caused several postponements of the closing date.
[14] Stevens was optimistic with respect to the fate of the application for 18 townhouses, at worst it would be reduced to 17 units. He believed any objection to the project would resolve. No doubt, Stevens attempted to be quite persuasive with Recchia. Both appeared to be open to the possibility of fewer units being approved. Accordingly, to address that possibility, by the 5th amendment of the APS dated Jan 10, 2012, the vendor take back mortgage was to factor in a reduction of the number of townhouse units. What emerged in this amendment was a proposed reduction to the face value of the mortgage by $61,111.11 per unit.
[15] A disagreement arose in January 2012 between the parties as to what point the per unit reduction would end (i.e the floor clause). Obviously the worst outcome would be that the mortgage take back would be effectively eliminated by the per unit reductions.
[16] By the 19th of January, neighbourhood opposition to the density of the project was starting to be reported by the local newspaper, the Dundas Star.
[17] There were negotiations between Stevens acting for 105 (which was essentially his alter ego) and Chris Langlotz, counsel for Recchia.
[18] January 23, 2012, Stevens wrote to Langlotz suggested that if no units were approved the entirety of the vendor take back would be due and payable. Langlotz emailed back the same date, reiterating the basic formula of a reduction per unit as described above.
[19] By email at 11:42 a.m. January 25th