Court File and Parties

Court Files No.: CV-10-411339 CV-16-549796 Date: 2016-10-03 Superior Court of Justice - Ontario

Re: Loblaw Properties Limited, Applicant And: The Corporation of the Town of Smiths Falls, Cross-Applicant

Before: Justice Edward P. Belobaba

Counsel: Katherine Menear and Graham Splawski for Loblaw Properties Kathryn Podrebarac and Alan Melamud for the Town of Smiths Falls

Heard: September 20, 2016

Endorsement

[1] This is an application by Loblaw Properties (“Loblaw”) and a cross-application by the Corporation of the Town of Smiths Falls (“the Town”). The applications ask in essence whether the Town has the right to repurchase a land parcel at its original price from Loblaw because Loblaw failed to develop the property within the prescribed four-year time period.

[2] For the reasons set out below, I find in favour of the Town. The Loblaw application is dismissed. The Town’s cross-application is granted in its entirety.

[3] In setting out the factual background and my reasons for decision, I borrow generously from the Town’s factum (with counsel’s permission) because I agree completely with the factual summary and legal analysis contained therein.

Overview

[4] In 2002, the Town entered into an agreement to sell vacant land in its business park to a developer, Brian Otis in Trust (“the Town/Otis Agreement”). In order to ensure that the land would not sit vacant, the Town reserved the right to repurchase the land at the original sale price if construction did not commence within a specified period of time.

[5] A few months later, Otis entered into an agreement with Loblaw (“the Otis/Loblaw Agreement”) for a portion of the land (the “Loblaw Parcel”). Loblaw knew when it entered into the Otis/Loblaw Agreement that the land was subject to the Town’s right to repurchase. This right was set out in three different paragraphs of the Agreement.

[6] Under this Agreement, Loblaw had to the right to walk away from the transaction if Otis could not get the Town to waive its right of repurchase. Prior to closing, Otis’s counsel specifically drew Loblaw’s attention to the provision in the Town/Otis Agreement that stated that the Town had the right to repurchase the Loblaw Parcel for the price paid by Otis if construction had not commenced within four years of closing. As it turned out, Otis was unable to get the Town to waive its rights. Loblaw elected to complete the transaction regardless and took title subject to the Town’s right of repurchase.

[7] Otis directed the Town to transfer the Loblaw Parcel directly to Loblaw. Loblaw’s legal counsel prepared and registered on title a transfer, which accurately reflected that the purchase price paid to the Town by Otis was $355,600. However, Loblaw prepared and registered the Town’s interest as a restrictive covenant and did not follow the form of the provision that was specifically drawn to its attention. The Town never approved the registrations as filed by Loblaw.

[8] Loblaw did not commence construction within four years of closing or ever. Having failed in its efforts to persuade the Town to waive its right to repurchase, Loblaw commenced an application in 2010 to declare the Town’s right of repurchase to be void or, alternatively, to be relieved on the basis that the right of repurchase is penal and unconscionable.

[9] The Town’s cross-application seeks to have this court affirm and enforce its right of repurchase and correct Loblaw’s errors in registration.

[10] The Town says there is nothing unusual, penal or unconscionable about the Town’s right to repurchase the land it sold for the same price it received if, as here, no development has occurred.

[11] The Town argues that Loblaw is a sophisticated party that was represented by counsel; that it purchased the Loblaw Parcel with full knowledge of the Town’s right to repurchase; that it had the right to walk away from the deal but chose not to do so and elected to complete the transaction subject to the Town’s right to repurchase; and that there is nothing penal or unconscionable in now enforcing this right.

[12] I agree with the Town for the reasons set out below. I begin with a more detailed recitation of the background facts.

Background Facts

The Town/Otis Agreement

[13] On April 15, 2002, the Town enacted By-Law No. 7677-2002 authorizing the Mayor to sell approximately 22 acres of vacant land in the Lombard Business Park (“the Lands”) pursuant to an agreement of purchase and sale dated April 15, 2002 (the “Town/Otis Agreement”).

The Town’s right to repurchase

[14] The Lombard Business Park is prime commercial real estate located just off Highway 15 which is a major gateway into the Town. The Town wanted to sell this land for the express purpose of development. Accordingly, in the Town/Otis Agreement, the Town retained the right to repurchase the Lands at the price they were sold if Otis failed to commence construction within two years after the date of closing (the “Town’s Right to Repurchase”) and required this right to be registered on title in conjunction with the transfer. The Town/Otis Agreement, which defined Otis as the Purchaser and the Town as the Vendor, provided:

The Purchaser agrees to commence construction on the property within two (2) years following the date of closing, failing which, the Vendor shall have the right to repurchase the property from the Purchaser at the original purchase price paid by the Purchaser for the property, subject to the usual adjustments. The Purchaser agrees that the right to repurchase shall be included in the transfer/deed of land from the Vendor to be registered on closing, provided that the Vendor shall execute a quit claim or other document releasing its right to repurchase, forthwith upon the commencement of construction, without cost to the Purchaser.

[15] A “right to repurchase” provision has been used by the Town in its land sale transactions since the 1980s. The Town says that development is important because it enhances the quality of life for the Town’s residents and attracts business which in turn contributes positively to the Town’s tax base. The repurchase right is aimed at ensuring that the land is actually developed as intended rather than being acquired by speculators or otherwise sitting idle and vacant.

The first amendment to the Town/Otis agreement

[16] On July 15, 2002, the Town enacted By-Law No. 7698-2002, authorizing the Mayor to sell an additional 5 acres in the Lombard Business Park to Otis. The Town/Otis Agreement was amended, increasing the area being sold to 27 acres. No amendment was made to the Town’s Right to Repurchase.

The Otis/Loblaw agreement

[17] A few months later, on or about October 3, 2002, Otis entered into an agreement to sell a portion of the Lands to Loblaw which included the Loblaw Parcel. Paragraphs 3.2(b)(viii), 3.3(a)(ii), and 7.4(b) of the Otis/Loblaw Agreement all referred explicitly to the Town’s Right to Repurchase:

3.2 Conditions for Purchaser’s Benefit

The obligation of the Purchaser to complete this transaction shall be conditional upon each of the following conditions being satisfied and fulfilled on the date noted for satisfaction which conditions have been inserted for the sole benefit of the Purchaser and which Purchaser alone may, in whole or in part, waive in writing, namely that:

(b) On or before November 29, 2002:

(viii) The Purchaser shall have satisfied itself that the Vendor shall have obtained a good and valid release from the Corporation of the Town of Smiths Falls of any right or option to repurchase the Real Property.

3.3 Vendor’s Condition

The obligation of the Vendor to complete this transaction shall be conditional upon each of the following conditions being satisfied and fulfilled on the date noted for satisfaction which conditions have been inserted for the sole benefit of the Vendor and which the Vendor alone may, in whole or in part, waive in writing, namely that:

(a) On or before November 29, 2002:

(ii) The Vendor shall have obtained a good and valid release from the Corporation of the Town of Smiths Falls of any right or option to repurchase the Real Property.

7.4 Rights of First Refusal

(b) The Purchaser herein acknowledges that the agreement of purchase and sale between the Vendor and the Town of Smiths Falls presently contains a right or option in favour of the Town of Smiths Falls to repurchase the Real Property. The Vendor shall endeavor to obtain a [sic] abandonment of this right in favor of the Town of Smiths Falls as outlined in the condition contained at Section 3.2(b)(viii). In the event that the Vendor is not able to obtain the abandonment of the right or the option by the Town of Smiths Falls, and in the event that the Purchaser does not terminate this agreement by reason of non-satisfaction of the above noted condition, or for non-satisfaction of any other condition in this Agreement, the Purchaser herein acknowledges that the right of first refusal granted to the Purchaser in Section 7.4(a) above shall be subject to any rights or options previously granted to the Town of Smiths Falls.

[18] Paragraph 5.2 of the Otis/Loblaw Agreement granted Loblaw the right to terminate the agreement if Otis did not obtain a waiver of the Town’s Right to Repurchase.

The second amendment to the Town/Otis agreement

[19] About a month later, the Town passed By-Law No. 7713-2002, which authorized a second amendment to the Town/Otis Agreement. The Second Amending Agreement reconfigured the Lands being sold by the Town and reflected the fact that Otis had entered into an agreement to sell to Loblaw a portion of the Lands referred to as the Loblaw Parcel.

[20] Paragraph 4 of the Second Amending Agreement amended the Town’s Right to Repurchase by increasing the length of time by which construction was required to commence from two to four years. It also expressly indicated that Loblaw would be subject to the same construction requirement if it became the owner of the Loblaw Parcel. In the “Original Agreement” that is referred to below (that is the Town/Otis Agreement), Otis was defined as the “Purchaser” and the Town was defined as the “Vendor”.

[21] Here is paragraph 4 of the Second Amending Agreement:

4. Section 14 of Schedule “A” of the Original Agreement shall be amended to provide that the Purchaser, or Loblaw Properties Limited, if it becomes the owner of the Loblaw Parcel, agrees to commence construction on the Loblaws Parcel within four (4) years following the date of closing, failing which the Vendor shall the right to repurchase the Loblaw Parcel from the Purchaser or Loblaw Properties Limited, as the case may be, at the original purchase price paid by the Purchaser for the Loblaw Parcel, subject to the usual adjustments. The Purchaser agrees that the right to repurchase shall be included in the Transfer/Deed of Land from the Vendor for the Loblaw Parcel to be registered on closing, provided that the Vendor shall execute a Quit Claim or other document releasing its right to repurchase, forthwith upon the commencement of construction, without cost to the Purchaser.

Loblaw waives the condition requiring a release from the Town’s right to repurchase

[22] From November 28, 2002 to June 12, 2003, Otis and Loblaw entered into a number of “letter agreements” amending the Otis/Loblaw Agreement. Under the first such agreement, Loblaw waived the condition found in paragraph 3.2(b)(viii) requiring Otis to obtain a release from the Town’s Right to Repurchase. No release was ever provided by the Town.

[23] Under the fifth and sixth letter agreements, Otis and Loblaw extended the time for Otis to waive the condition set out in paragraph 3.3(a) of the Otis/Loblaw Agreement. The condition permitted Otis to terminate the agreement if he could not obtain a release from the Town’s Right to Repurchase.

[24] On June 2, 2003, the Town enacted By-Law No. 7761-2003 releasing certain conditions in the Town/Otis Agreement. Again, the Town’s Right to Repurchase was not affected.

The June 2003 letter to Loblaw

[25] On June 12, 2003, counsel for Otis sent a letter to counsel for Loblaw. The June 2003 Letter confirmed that Otis was waiving the conditions set out in Section 3.3(a), “subject to the provisions of Paragraphs 4 and 5 of the Second Agreement Amending Agreement of Purchase and Sale dated October 21, 2002 between the Vendor and the Town, a copy of which was enclosed with our letter to you of November 28, 2002.”

[26] Loblaw must have received the June 2003 Letter because it is attached to the affidavit that it filed in support of its application and Loblaw has filed no evidence to the contrary.

Loblaw incorrectly registers the Town’s right to repurchase

[27] The Otis/Loblaw Agreement closed on July 3, 2003. Otis directed the Town to transfer the Loblaw Parcel directly to Loblaw. Loblaw’s counsel prepared and registered a transfer with the Land Registry (the “Transfer”). The Transfer indicates (correctly) that the the purchase price paid to the Town by Otis was $355,600.

[28] The Transfer further attached “Instrument Statement 61” which referred to a right of repurchase in favour of the Town but failed to do so in the form set out at paragraph 4 of the Second Amending Agreement. Instead, Loblaw set out the following:

The Purchaser agrees to commence construction on the property within four (4) years following the date of closing, failing which the Vendor shall have the right to repurchase the property from the Purchaser at the original purchase price paid by the Purchaser for the property, subject to the usual adjustments. The Vendor shall execute a quit claim or other document releasing its right to repurchase forthwith upon the commencement of construction, without cost to the Purchaser.

[29] The Transfer was rejected the Land Registrar. Loblaw then registered the Town’s right to repurchase the Loblaw Parcel as just described but as a restrictive covenant, separately from the Transfer.

[30] The registrations as prepared and filed by Loblaw were never approved by the Town.

Loblaw fails to commence construction

[31] Four years after the July 3, 2007 closing date of the Otis/Loblaw Agreement, Loblaw had still not commenced any construction on the Loblaw Parcel. Nor has it ever commenced construction.

[32] Having set out the background facts in some detail, I can now turn to the legal analysis.

Analysis

[33] These applications raise the following issues: (1) the legal nature of the Town’s Right to Repurchase; (2) whether this Right to Repurchase is void for uncertainty; (3) whether Loblaw is entitled to relief from forfeiture; and (4) whether the declarations and orders requested by the Town in its cross-application are appropriate in the circumstances.

[34] I will deal with each of the issues in turn.

The Town’s right to repurchase is an equitable interest that binds Loblaw

[35] As the Supreme Court noted in Vaughan Construction, [^1] a right to reconveyance, such as the Town’s Right to Repurchase, grants the holder of the right an equitable interest in the land. [^2] There is no requirement for a contract between the Town and Loblaw in order for the Town to have a valid interest that runs with the land. [^3] The case law is clear that the Town’s Right to Repurchase is not a personal covenant, but an equitable interest in the land, which is enforceable by the Town against a subsequent purchaser who bought with notice of the right of reconveyance. [^4]

[36] Loblaw had notice of the Town’s Right to Repurchase when it purchased the land. Recall the evidence in this regard:

• Paragraphs 3.2(b)(viii), 3.3(a)(ii), and 7.4(b) of the Otis/Loblaw Agreement all made express reference to the Town’s Right to Repurchase the Loblaw Parcel, and paragraph 7.4(b) noted that the right arose from the agreement of purchase and sale between the Town and Otis.
• Loblaw waived its right to terminate the Otis/Loblaw Agreement if Otis could not obtain a release from the Town’s Right to Repurchase, pursuant to paragraph 5.2; no release from the Town was ever obtained.
• In the June 2003 Letter sent prior to the closing of the Otis/ Loblaw Agreement, Otis’s counsel advised Loblaw that the Town had not waived its conditions in paragraphs 4 and 5 of the Second Amending Agreement which he said had been previously provided to Loblaw. Paragraph 4 of the Second Amending Agreement expressly amended the Town’s Right to Repurchase to include Otis’s sale to Loblaw and set out the precise terms of that right.
• Loblaw registered the Town’s Right of Repurchase on title, albeit incorrectly, first in the transfer and then as a restrictive covenant.
• Loblaw has not stated in any of the affidavits filed in support of its application or in response to the Town’s cross-application that it had no knowledge of the Town’s Right of Repurchase as set out in Town/Otis Agreement as amended.

[37] I therefore agree with the Town that its Right to Repurchase is an equitable interest that runs with the land and binds Loblaw.

Loblaw’s reliance on the Land Titles Act

[38] I also agree with the Town that Loblaw’s attempt to use the [Land Titles Act [^5]] to void the Town’s Right to Repurchase is misplaced. Loblaw relies on s. 118(4) of the LTA, even though this subsection applies only to “restrictions on transferring or charging the land or charge.” [^6] As made clear by the Court of Appeal in Jain, [^7] a right of reconveyance is not a restriction or restraint on the alienation of land. [^8]

[39] Loblaw also relies on s. 119 of the LTA is an attempt to knock down a straw-man that Loblaw itself created. It was Loblaw, not the Town, that incorrectly registered the Town’s equitable interest as a restrictive covenant pursuant to s. 119. The Town’s Right of Repurchase should have been registered on title pursuant to section 71. [^9] Loblaw cannot rely on its own error to defeat the Town’s valid interest.

[40] In any event, the LTA does not defeat the common law principle of actual notice. [^10] Accordingly, I agree with the Town that Loblaw cannot escape the effect of an otherwise valid equitable interest of which it had notice, whether that interest was properly registered or even registered at all.

There is no uncertainty

[41] I further agree with the Town that the interpretation of the Right to Repurchase should not be based on the wording of the restrictive covenant that Loblaw alone prepared and registered and which the Town never approved. In my view, Loblaw mischaracterizes the Town’s right, as an option between itself and the Town, with the restrictive covenant setting out the terms of that option.

[42] As already discussed, the Town’s Right to Repurchase constitutes an equitable interest in the Loblaw Parcel. [^11] It is not premised on a contract with Loblaw. Given that the equitable interest arose out of the Town/Otis Agreement, it is paragraph 4 of the Second Amending Agreement that defines the Town’s right. As discussed above, this Agreement was provided to Loblaw, and the provision was specifically drawn to its attention by Otis’s counsel prior to closing.

[43] Both sides agree that the purchase price paid by Otis to the Town was $355,600. Indeed, Loblaw prepared and registered the Transfer of the Loblaw Parcel, wherein Loblaw acknowledged that Otis had purchased the land from the Town for this very price. There is no uncertainty. The “original purchase price paid by the Purchaser” can only mean $355,600, the price paid by Otis, the Purchaser.

Loblaw is not entitled to relief from forfeiture

[44] Loblaw is not entitled to relief from forfeiture because it cannot satisfy either prong of the applicable two-part test: (i) that the Town’s Right of Repurchase is penal in nature; and (ii) that it is unconscionable. Both prongs must be satisfied. [^12]

[45] First, the penalty argument. To show that the Town’s Right to Repurchase is penal in nature, Loblaw must first provide evidence about the market value of the Loblaw Parcel on the date of the alleged breach – that is the value of the Loblaw Parcel on July 3, 2007, four years after it purchased the property and had not commenced construction. [^13]

[46] The two attempts to file the required valuation evidence do not succeed – for three reasons. The St. Louis and Madden affidavits with three appraisal reports attached, although filed on time, is replete with hearsay, contravenes the “expert report” requirements of Rules 4.1 and 53.03 and must be struck. [^14] The Murphy affidavit, with these contraventions corrected, was not filed on time and cannot be admitted. More importantly, even if the appraisal reports were found to be admissible, none of them would assist herein because in each case, the valuation is for the four parcels acquired by Loblaw and not just the single Loblaw Parcel that is in question here.

[47] I therefore agree with the Town that there is no evidentiary basis for the penalty submission.

[48] There is also no basis for the unconscionability argument. Unconscionability requires a finding of (i) an inequality of bargaining power and (ii) an abuse of that bargaining power that results in a substantially unfair term. [^15]

[49] Loblaw is a sophisticated entity that entered into a real estate transaction with Otis involving a complex agreement of purchase and sale. At all times it was represented by legal counsel. It was clearly in a position to protect its own interests. There is no basis to find that the Town somehow abused its bargaining position or even that the Town’s Right to Repurchase the land at the price that it was sold is substantially unfair. A municipality’s right of repurchase in similar circumstances has been upheld by the Court of Appeal as a standard and legitimate provision. [^16]

[50] Loblaw knew of the Town’s Right to Repurchase when it purchased the land and chose to be subject to its conditions. Loblaw had four years to commence building on the land and decided to do nothing. Loblaw has continued to do nothing for the nine years since the four year period expired. The Town has a legitimate interest in having the Lombard Business Park developed for the benefit of the community. There is no unconscionability.

The requested declarations are necessary

[51] For the reasons already stated, I am satisfied that the Town has a valid and subsisting equitable interest in the Loblaw Parcel entitling it to purchase the land for $355,600 subject to the usual adjustments. In Vaughan Construction, the Supreme Court of Canada held that the right to reconveyance can be specifically enforced. [^17]

[52] The several declarations sought by the Town clarify the Town’s rights, which is necessary given Loblaw’s challenges to the validity and content of the Town’s equitable interest. This court has the jurisdiction to make these declarations under [s. 97 of the Courts of Justice Act [^18]]. Indeed, this court has ordered similar declarations with respect to reconveyance rights on numerous occasions. [^19]

Rectification is needed to correct Loblaw’s mistake

[53] In addition to the declarations, a correction of the title register so that the register accurately reflects the Town’s equitable interest is appropriate and warranted. Unlike the plaintiff in Sylvan Lake, [^20] relied on by Loblaw, the Town had no opportunity to review Loblaw’s registration of the Town’s Right of Repurchase on title. The mistake of registering the Town’s interest as a restrictive covenant was Loblaw’s alone.

[54] I therefore agree that the title register should be corrected so that it accurately reflects the true state of affairs. [^21] The requested rectification would put the parties in the very position they intended to be at the time Loblaw purchased the land.

Disposition

[55] Loblaw’s application is dismissed.

[56] The Town’s application is granted including the declarations and mandatory orders set out in the Town’s Notice of Application paras. 1 (a), (b) and (c).

[57] The Town was successful on these applications and is entitled to its costs. If the parties are unable to agree on the amount payable, I would be pleased to receive brief written submissions as follows – from the Town within 10 days and from Loblaw within 10 days thereafter.

Belobaba J. Date: October 3, 2016

Footnotes

[^1]: Halifax (City of) v. Vaughan Construction Co. , [1961] S.C.R. 715. [^2]: Ibid., at 720. [^3]: City of Kitchener v. Weinblatt, [1966] O.J. No. 1042 (C.A.) , aff’d , [1969] S.C.R. 157. [^4]: Ibid. at paras. 15-16 (C.A.). See also Jain v. Nepean (City) , [1992] O.J. No. 1505 (C.A.) at para. 22 . [^5]: Land Titles Act, R.S.O. 1990, c. L.5 (“LTA”). [^6]: Ibid., ss. 118(1) and (4). [^7]: Jain, supra, note 4. [^8]: Ibid., at para. 7. [^9]: Land Titles Act , supra note 5, s. 71 and Benzie v. Kunin , 2012 ONCA 766 at paras. 64-65 and 76-79 . Also see Bulletin No. 96001, Ministry of Consumer and Commercial Relations (July 10, 1996). [^10]: United Trust Co. v. Dominion Stores Ltd. , [1977] 2 S.C.R. 915 at 951-55 ; Lawrence v. Wright , 2007 ONCA 74 at paras. 51-56 . [^11]: Vaughan Construction, supra note 1. [^12]: Infinity Gold Mining Inc. v. Wega Mining AS , 2015 ONSC 607 at para. 69 , and cases discussed therein. [^13]: Ibid., at para. 69. [^14]: Specifically: paras. 7 and 8, and Ex. A and B of the St. Louis Supp. Affid. dated Oct. 17, 2011 are struck; and paras. 9 and 10, and Ex. A of the Madden Affid. dated May 19, 2016 are struck. [^15]: Birch v. Union of Taxation Employees , Local 70030 , 2008 ONCA 809 at paras. 41-45 . [^16]: Jain, supra note 4. [^17]: Vaughan Construction, supra note 1 at 720 . [^18]: Courts of Justice Act , R.S.O. 1990, c. C. 43, s. 97. [^19]: See for example: Marcrob Estates Ltd. v. Servedio , [1976] O.J. No. 1281 at para. 18 (H.C.J.) , aff’d, [1977] O.J. No. 800 (C.A.) and Kahlen v. Vogel Construction Ltd. , [2006] O.J. No. 521 (S.C.J.) at para. 86 . [^20]: Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd. , 2002 SCC 19 . [^21]: Sandford Acres (1987) Ltd. v. Cappella , [2015] O.J. No. 7104 (S.C.J.) .