2144688 Ontario Ltd. v. 1482241 Ontario Ltd., 2016 ONSC 1475
CITATION: 2144688 Ontario Ltd. v. 1482241 Ontario Ltd., 2016 ONSC 1475
COURT FILE NO.: CV-10-416517
DATE: 20160304
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2144688 ONTARIO LTD.
Plaintiff/Defendant by Counterclaim
– and –
1482241 ONTARIO LTD.
Defendant/Plaintiff by Counterclaim
COUNSEL:
Doug Bourassa, for the Plaintiff/Defendant by Counterclaim
Richard Quance and T. Trusz (Student-At-Law), for the Defendant/Plaintiff by Counterclaim
HEARD: February 23, 24, 25 and 26, 2016
M. D. FAIETA, J.
REASONS FOR JUDGMENT
INTRODUCTION
[1] The Defendant, 1482241 Ontario Ltd., (“Seller”) owns an eight-storey commercial building located at 240 Duncan Mill Road, Toronto (“Property”). By an agreement dated June 21, 2010 (“APS”) the Plaintiff, 2144688 Ontario Inc. (“Buyer”), agreed to purchase the Property for $15 million. Under the APS the Buyer was required to assume an existing mortgage of $9.7 million. The Seller was required to take back a second mortgage of $3 million. Schedule “B” to the APS contains various representations made by the Seller regarding the Property including the number of parking spaces at the Property as well as the income and expenses associated with the Property.
[2] The Buyer paid a deposit of $100,000.00 to the Seller with the acceptance of the APS. The APS required the Buyer to pay a second deposit of $100,000.00 to the Seller upon the expiry of the conditional period noted in the “Buyer’s Condition” granted in the Buyer’s favour.
[3] Schedule “A” of the APS states:
The Seller shall deliver to the Buyer within 4 days of acceptance of this Agreement of Purchase and Sale, all materials referred to in the paragraph entitled “Buyer’s Condition” in Schedule “B” herein.
[4] Schedule “B” of the APS states:
Buyer’s Condition
This Agreement of Purchase and Sale shall be conditional from the date of mutual acceptance thereof until 5 pm, on the 60th day following delivery to Buyer of all documentation referred to in this paragraph (the “Conditional Period”) upon the Buyer satisfying itself, in its sole and absolute discretion (which shall not be subject to review by the Seller), with all aspects of the Property (including but not limited to the leases and rental income, zoning, density efficiencies, physical condition of the Property, engineering and environmental matters, and the feasibility of the Property for the Buyer’s intended use).
The Seller shall provide (or cause to be provided) within 4 days of mutual acceptance of this Agreement, the following: up to date surveys, zoning applications, tax bills for the past two years, any contracts ie. Elevator, hvac, copy of all leases, any drawings in possession and other developmental material, the leases for the parking units and all other relevant documents within the possession or control for the Buyer’s review, including without limitation, copies of all engineering and soil and environmental tests and audits. Unless the Buyer delivers a written notice to the Seller or Seller’s solicitors prior to the expiry of the Conditional Period that the Buyer is satisfied with its due diligence investigations and wishes to proceed with the purchase of the Property herein, this Agreement shall become null and void and the Buyer’s deposit shall be returned to the Buyer in full with interest and without any deduction whatsoever.
Buyer may, at its sole option and in its absolute discretion, and at its sole cost and expense during the Conditional Period, retain the services of engineers and other consultants to conduct engineering, soil and environmental tests and audits, and Seller shall provide Buyer with access to the Property for such purpose.
The Buyer shall have the right to inspect the property four (4) times given the proper notices are provided to the Vendor.
The Purchaser acknowledges the following statistics: see attached Schedule C
The Purchaser further acknowledges there are approximately 488 parking stalls at 240 Duncan Mill Road.
The property is approximately 173,180 sq ft, of which approximately 83,346 sq ft is leased and approximately 89,834 sq ft is vacant currently. This works out to be about 52% of the property is vacant. Although from 105,410 sq ft vacant, approximately 15,000 sq ft have been leased for approximately $110,000 net per annum of income, therefore, leaving approximately 90,408 sq ft vacant. [Underlining added]
[5] Schedule “C” includes a “Parking Income Summary Chart” for the Property and a Rent Roll for the Property. The last page of the Rent Roll states:
Total Income for Bldg: $1,703,682.47
Total Operating Expenses: $887,004.28
Total Net Income: $814,858.29
Parking Income: $551,760.00
Total Gross Income Including Parking: $2,253,422.47
Net Income: $1,366,418.28
[6] Schedule “B” of the APS provides that the sale shall be completed on the 60th day following the waiver of the Buyer’s Condition.
[7] The Buyer alleges that the Seller failed to deliver the information and documents required by the Buyer’s Condition. As a result, this sale has not been completed. The Buyer seeks specific performance of the Buyer’s Condition.
[8] The Seller submits that specific performance is not available in these circumstances. Alternatively, the Seller submits that the Buyer failed to waive the Buyer’s Condition even though it provided all of the required information and documents to the Buyer. By counterclaim, the Seller claims that it is entitled to the deposit of $100,000.00 that is being held in trust by its former solicitor as a result of the Buyer’s alleged failure to complete this purchase.
[9] The trial of this action was held over four days.
[10] For the reasons set out below, I dismiss the Plaintiff’s action and the Defendant’s counterclaim.
ISSUE #1: DID THE SELLER SATISFY THE BUYER’S CONDITION?
[11] The Buyer alleges that the Seller did not satisfy the Buyer’s Condition. As the plaintiff in this action, the burden of proof is on the Buyer to demonstrate that the Seller did not satisfy the Buyer’s Condition.
[12] Claude Bitton is the principal of the Buyer. Mr. Bitton and his real estate solicitor, Robert Pollock, testified on behalf of the Buyer. Alain Checroune, the principal of the Seller, testified on behalf of the Seller.
[13] Both Mr. Bitton and Mr. Checroune were challenging witnesses. At times neither witness was prepared to concede the obvious. The ability of both witnesses to recall events or to respond directly to questions seemed to depend on whether it served their needs. On numerous occasions, Mr. Checroune’s evidence at trial contradicted his evidence at discovery. Both witnesses often argued with opposing counsel during cross-examination and, despite repeatedly being directed not to do so, they seemed to prefer asking questions of opposing counsel.
[14] Mr. Pollock responded to questions in a direct and straightforward manner. Not surprisingly, he was unable to recall specific details of many things given that his last involvement with this matter was in early 2011 and given that his real estate file in this matter had been given to the Buyer’s litigation counsel and has not been returned.
[15] Under the APS, the Seller was obliged to provide “all materials referred to in the paragraph entitled Buyer’s Condition” within four days of days of acceptance of the APS. Given that the APS was accepted on June 30, 2010, the Seller was obliged to provide the above material by July 4, 2010.
[16] In my view, “materials” in this context meant documents.
[17] The Buyer’s Condition has seven paragraphs but only paragraph 2 of the Buyer’s Condition requires that the Seller provide documents to the Buyer: up to date surveys, zoning applications, tax bills for the past two years, any contracts, i.e. elevator, HVAC, copy of all leases, any drawings in possession and other developmental material, the leases for the parking units, all other relevant documents within its possession or control for the Buyer’s review, including without limitation, copies of all engineering and soil and environmental tests and audits.
Up to Date Survey
[18] There is no dispute that the Buyer was provided with a survey dated May 19, 2006. In my view, this survey satisfied the requirement for an up to date survey. In addition, the Buyer obtained a further survey at his own expense with the consent of the Seller.
Zoning Applications
[19] Mr. Checroune states that the Seller does not have any zoning applications as he has not made any zoning applications in respect of the Property. I accept this statement. The Buyer has not led any evidence to suggest that a zoning application in respect of the Property exists.
Tax Bills for the Past Two Years
[20] A Tax Certificate for the Property was obtained by the Buyer. It shows that the taxes in 2010 for the Property were $764,474.22.
Contracts - Elevator, HVAC
[21] Mr. Checroune testified that he does not have a written contract for the HVAC and elevator services. The Buyer has not led any evidence to suggest that written contracts exist in respect of the Property. See Exhibit 1, Tab 2.
Copy of all Leases – The Leases for the Parking Units
[22] Mr. Checroune’s evidence is that the Buyer’s staff attended at his office on numerous occasions to view all leases and other documents as well as to make copies of those documents. Mr. Checroune did not see the Buyer’s staff make copies of the leases but he believes they did as they had the opportunity to do so. I accept Mr. Checroune’s evidence on this point as the correspondence between the parties and their solicitors suggests that as of October 24, 2010 the only lease sought by the Buyer was a full copy of a sub-lease to Shoppers Drug Mart. That sub-lease was provided by letter dated October 21, 2010 by the solicitor for the Seller.
Drawings in Possession and other Developmental Material
[23] Mr. Checroune testified that he does not have any drawings or other materials for the development of the Property in his possession. The Buyer has not led any evidence to suggest that such material exists in respect of the Property. The Buyer appears to have been satisfied with this position as demonstrated by Mr. Pollock’s email dated October 18, 2010. In the email, Mr. Pollock sought certain material that he alleged was “missing”, but did not request the these materials.
All Other Relevant Documents Within its Possession or Control for the Buyer’s Review, Including Without Limitation, Copies of All Engineering and Soil and Environmental Tests and Audits
[24] Mr. Checroune states that the Seller does not have any “engineering and soil and environmental tests and audits”. I accept his evidence as the Buyer has not led any evidence to suggest that such material in respect of the Property exists. Mr. Pollock’s email dated October 18, 2010 specified the “missing materials” that remained to be delivered to the Buyer and did not refer to “engineering and soil and environmental tests and audits”.
[25] On January 11, 2011, Mr. Pollock sent an additional email which provided a “final summary of the outstanding due diligence materials” requested by the Buyer. Included in that list were “details regarding the operating expenses at the property (including realty tax bills, utility bills, invoices, contracts, insurance bills, and any other time relevant to operating expenses)”. This request was not included in his email dated October 20, 2010, which instead asked for a breakdown of operating costs. A breakdown of operating costs for the Property was provided by the Seller’s solicitor by a letter dated October 21, 2010.
[26] Mr. Bitton testified that such documents should be reviewed in order to verify operating expenses when considering whether to buy an investment property. However, this is an extensive obligation that the Buyer seeks to read into the APS. Mr. Bitton drafted the APS. He did not include this extensive obligation specifically in the APS. Had he intended to impose this significant obligation upon the Seller, then: 1) such requirement would have been expressly included in the lengthy Buyer’s Condition; and 2) the Buyer would not have waited more than six months after the deadline for delivery of “materials” under the Buyer’s Condition to request these documents in writing. Accordingly, I find that the Buyer’s Condition does not require the Seller to provide the Buyer with “details regarding the operating expenses at the property (including realty tax bills, utility bills, invoices, contracts, insurance bills, and any other time relevant to operating expenses)”.
[27] The Buyer also submits that the Seller is obliged to provide an “updated rental roll”. This request was made in the final email sent by Mr. Pollock dated January 11, 2011. The Buyer submits that such material is a relevant document within the Seller’s possession. The Buyer submits that the Seller entered several leases following the date of the APS. In my view, there is nothing in the APS that creates an obligation on the Seller to provide updated information. The Buyer’s Condition contemplated that the required materials were to be provided within four days of acceptance of the APS. In fact, the rent roll was appended to the APS. A rent roll for 2010 was provided by Mr. Checroune by fax dated April 13, 2011. Even if such an obligation existed, it was satisfied by the Seller.
[28] In conclusion, I find that the Buyer has not demonstrated that the Seller has failed to comply with the obligation to deliver materials under the Buyer’s Condition. Although this conclusion is dispositive of this action, I would not have granted specific performance for the reasons below had I found that the Seller failed to comply with the Buyer’s Condition.
ISSUE #2: IS THE BUYER ENTITLED TO SPECIFIC PERFORMANCE?
[29] The Buyer does not ask this Court to compel the Seller to transfer the Property to the Buyer. Instead, it asks this Court to compel the Seller to comply with the Buyer’s Condition. In my view, that distinction (between the disclosure obligation in the APS as opposed to the obligation in the APS to complete the sale) makes no difference in the analysis of whether specific performance should be granted.
[30] Damages are the usual remedy for a breach of contract. An order requiring specific performance of a contract is an equitable remedy that is only granted where damages for breach of contract would not be a complete remedy. In respect of a contract for the sale of land, the remedy of specific performance is available if “…the property is unique to the extent that its substitute would not be readily available” thereby preventing a plaintiff from purchasing an alternative property in mitigation of his or her losses. See Semelhago v. Paramadevan, 1996 CanLII 209 (SCC), [1996] 2 S.C.R. 415, at para. 22. Uniqueness, which requires the assessment of whether a property has “qualities that make it especially suitable for the proposed use by the plaintiff that cannot be reasonably duplicated”, is to be measured both subjectively and objectively. An objective assessment of uniqueness requires that a “reasonable person familiar with the facts surrounding their purchase and sale agreement would consider the property to be unique”. See Gillespie v. 1766998 Ontario Inc., 2014 ONSC 6952, 247 A.C.W.S. (3d) 714, at paras. 2 and 32-33.
[31] I was not provided with any cases where specific performance was found to be an appropriate remedy in respect of a contract for the sale of an investment property. There are numerous cases to the contrary:
(1) In Southcott Estates Inc. v. Toronto Catholic District School Board, 2009 CanLII 3567 (ON SC), [2009] O.J. No. 428; 2010 ONCA 310, 104 O.R. (3d) 784; aff’d 2012 SCC 51, [2012] 2 S.C.R. 675, the plaintiff purchased a 4.78 acre property in Toronto for the purpose of redeveloping it for residential use. The plaintiff alleged that the vendor was in breach of its obligation under the purchase agreement to use best efforts to obtain planning approval for the severance of the property. The defendant alleged that the agreement was terminated because it was unable to obtain the severance of the property by the closing date. In dismissing the claim for specific performance, the trial judge accepted that the property had a number of attractive qualities (it was a relatively small property next to a school within the city surrounded by good quality real estate development), but noted, at para. 128:
…that these were not aesthetic, ethereal or non-economic features which can be linked to the plaintiff. They were rather qualities related solely to the profitability of the development which are compensable by monetary damages. I conclude that the subject lands do not have the quality of uniqueness, beyond that of being, perhaps, a “uniquely good investment”. [Emphasis added]
In the Supreme Court of Canada, Justice Karakatsanis stated, at para. 41:
A plaintiff deprived of an investment property does not have a "fair, real, and substantial justification" or a "substantial and legitimate" interest in specific performance (Asamera, at pp. 668-69) unless he can show that money is not a complete remedy because the land has "a peculiar and special value" to him (Semelhago, at para. 21, citing Adderley, at p. 240). Southcott could not make such a claim. It was engaged in a commercial transaction for the purpose of making a profit. The property's particular qualities were only of value due to their ability to further profitability. Southcott cannot therefore justify its inaction.[1]
(2) In Shapiro (c.o.b. ISR Ent. in Trust) v. 1086891 Ontario Inc (2006), 145 A.C.W.S. (3d) 523 (Ont. S.C.), the purchaser claimed specific performance of an agreement to purchase an apartment building. The building was allegedly unique because it had “excellent investment potential.” The claim was dismissed for the following reasons, at para. 133:
The immediate case has much in common with the Domowicz v. Orsa Investments Ltd., where in a very erudite judgment, Adams, J. reviewed the law about the availability of specific performance. In the Domowicz case, Adams, J. rejected the argument that the apartment complex in that case was unique based on its physical amenities, and he rejected the claim for specific performance. He concluded that the apartment building was essentially an investment property. The property in the Domiwicz case had only an economic value for the plaintiff, and the monetary remedy of damages was adequate and the proprietary remedy of specific performance was not justified. In the immediate case, I similarly conclude that Burlington Square was essentially an investment property and that the proprietary remedy of specific performance was never available to the El Ad Group. [Emphasis added]
(3) In Hunter’s Square Developments Inc. v. 351658 Ontario Ltd. (2002), 2002 CanLII 49491 (ON SC), 60 O.R. (3d) 264 (S.C.); aff’d (2002), 2002 CanLII 9163 (ON CA), 62 O.R. (3d) 302 (C.A.) a developer’s claim for specific performance was dismissed. The court found that the property was being purchased for investment purposes to be developed and resold at a profit, despite the developer’s assertion that the property was unique because it provided access to a major highway interchange. The court decided that the plaintiff’s interest in acquiring this investment property could be adequately protected by a damages award.
(4) In Domowicz v. Orsa Investments Ltd. (1993), 1993 CanLII 5472 (ON SC), 15 O.R. (3d) 661; var’d (1998), 1998 CanLII 17748 (ON CA), 40 O.R. (3d) 256 (C.A.), the Court of Appeal upheld the dismissal of the purchaser’s claim for specific performance of an agreement to purchase an apartment building. The court found that there was insufficient evidence that the apartment building was physically and commercially unique. The court noted that the purchaser was not going to live in the building and that its features were representative of many other apartments.
(5) In Heron Bay Investments Ltd. v. Peel-Elder Developments Ltd. [1976] O.J. No. 1403 the court dismissed a motion for leave to appeal from an order that vacated the registration of a certificate of lis pendens. The court stated, at para. 4:
The remedy of specific performance is one that is peculiar to real estate transactions and is based on the fact that real estate is regarded as unique and of particular importance to the purchaser. Obviously, the purchase of a new house is much different than the buying of a new car, which can be replaced by an almost identical new car. That reasoning does not apply when land is purchased merely as an investment. In the case at bar, the land was purchased as an investment. True it may be a uniquely good investment, but it was not being purchased by the plaintiffs for their own use but only to develop and resell at a profit. Obviously, any loss of profits can be compensated for in damages. [Emphasis added]
[32] Mr. Bitton testified that he has been involved in real estate and property management for over 40 years. His specialty is to assemble land and do joint ventures with developers. He manages his own investment properties. He is accustomed to real estate transactions that have a value between $5 million to $45 million. Mr. Bitton testified that the Property presented an excellent investment opportunity for many reasons, including: 1) it appeared to provide a high return on an operating income basis, although about one-half of the office building was vacant; 2) it appeared to have re-development potential given that there was considerable amount of land used for surface automobile parking that could be used to build a second building or expand the existing building; and 3) there was re-development potential to renovate the vacant units, convert them to office condominiums and sell them as such. The evidence also indicated that the Buyer and Seller had entered into a further agreement shortly before the APS was signed whereby the Buyer agreed to split any profits if the Buyer was to re-sell the Property.
[33] In my view, the Buyer is not entitled to specific performance of the Buyer’s Condition found in the APS. Mr. Bitton did not provide subjective evidence that the Property is unique to him in the sense that it has a “peculiar or special value” to him for which money could not be a complete remedy. There is no evidence that the Property had a non-economic value to the Buyer. The Buyer agreed to purchase this Property to generate income. Mr. Bitton viewed the Property as potentially an excellent investment opportunity. Further, the Buyer has presented no objective evidence that the Property is unique in the sense described above. Finally, the Buyer’s failure to claim for damages in this action does not change my view that specific performance should not be granted and does not bolster evidence of the Property’s “uniqueness”.
ISSUE #3: SHOULD THE COUNTERCLAIM BE GRANTED?
[34] The Counterclaim alleges that the Seller is entitled to the deposit of $100,000.00, with accrued interest, since the APS was not completed as a result of the Buyer’s default. Given my findings, the time for the Buyer to provide written notice that it wished to proceed with the purchase of the Property passed a long time ago. The Buyer’s Condition provides that the Buyer is entitled to have its deposit returned with interest in the event that the Buyer d does not provide notice that it wishes to proceed with the purchase. Accordingly, the Counterclaim is dismissed as the Seller is not entitled to the deposit because the Buyer did not deliver the requisite notice.
CONCLUSIONS
[35] I dismiss the Buyer’s claim and the Seller’s counterclaim. The Seller shall deliver its costs submissions, an outline of costs and any offers to settle made by either party within seven days of today’s date. The Buyer shall deliver its reply costs submissions and its outline of costs within 14 days of today’s date. The costs submissions shall be no more than four pages long.
Mr. Justice M. D. Faieta
Released: March 4, 2016
CITATION: 2144688 Ontario Ltd. v. 1482241 Ontario Ltd., 2016 ONSC 1475
COURT FILE NO.: CV-10-416517
DATE: 20160304
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2144688 ONTARIO LTD.
Plaintiff/Defendant by Counterclaim
– and –
1482241 ONTARIO LTD.
Defendant/Plaintiff by Counterclaim
REASONS FOR JUDGMENT
Mr. Justice M. D. Faieta
Released: March 4, 2016