Court File and Parties

Court File No.: CV-20-00001774 Date: 2020-07-02 Ontario Superior Court of Justice

Between: Mohammad Jafar Haghollahi and Parvaneh Yaghoubi, Applicants – and – Gregory Butt, Tara Butt and Royal LePage RCR Realty, Brokerage, Respondents

Counsel: Adam Stephens and Madeleine Dusseault, for the Applicants Patrick Summers, for the Respondents, Gregory Butt and Tara Butt

Heard: June 29, 2020

Reasons for Decision

CAMERON J.:

[1] This is an application by the Plaintiff purchasers for a declaration that they are entitled to rescind an Agreement of Purchase and Sale (the “Agreement”) and for the return of their deposit of $75,000. The purchasers argue that the Defendant vendors have failed to show good title because, after the Agreement was entered into, a title search revealed two easements on the property for storm and sanitary sewers.

[2] The application was heard before me on June 29, 2020, the day before the scheduled closing date of June 30, 2020. The material before me included: an application record from both parties, a responding application record from the Applicant purchasers and a copy of transcripts from discoveries of all concerned parties and witnesses.

[3] After hearing submissions from counsel, I held that the easements do not materially affect the use of the property or affect the enjoyment of the property in any significant way. These are my reasons.

Facts:

[4] The Agreement for the property located at 934 Lockwood Circle in Newmarket, Ontario was signed by the parties on February 13, 2020. The agreed upon purchase price was $1,755,000. A $75,000 deposit was paid on that date and is held in trust by Royal LePage RCR Realty Brokerage, the agent for the vendors. As stated, the deal is scheduled to close on June 30, 2020.

[5] With respect to title, clause 10 (d) of the Agreement states:

Provided that 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 …

(d) any easements for drainage, storm or sanitary sewers, public utility lines, telecommunication 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 [1] any valid objection to title … or to the fact that the said present use may not be lawfully continued … and which Buyer will not waive, the Agreement, notwithstanding any intermediate acts of 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 title, Buyer shall be conclusively deemed to have accepted Seller’s title to the property.

[6] Schedule B of the Agreement describes the property as “PCL 186-1 SEC 65M2710; LT 186 PL 65M2710; S/T LT605802, LT623992 NEWMARKET. “Subject to” LT605802 and LT623992 is in reference to the easements. Although the easements are clearly marked on a survey of the property, a survey was not attached to the Agreement.

[7] Both easements are in favour of the Town of Newmarket and relate to the maintenance and inspection etc. of sanitary and storm sewers. The easements require the owner of the property to keep the areas free of any trees, buildings, structures and obstructions and that they not be paved with hard concrete. The land may be used as lawn, farm operation, garden, flower beds, roadways, driveways or parking areas.

[8] 934 Lockwood Circle is a two-storey home with five bedrooms and five bathrooms sitting on a property of 0.55 acres. There is a pool surrounded by a concrete pad which is approximately 4000 square feet in size. There is an existing cabana / shed. There is an above-ground hot tub. None of these encroach upon the easements. The area of the easements is free of any other concrete or structures and have lawn, garden and a few trees on them.

[9] The first easement bisects the backyard. The second easement runs along the east side of the property and is much smaller. The first easement comprises approximately 14.8% of the property. The parties agree that the second easement, due to its size and location, is inconsequential.

[10] One of the purchasers, Mr. Haghollahi, is a licenced real estate agent though he does not presently work in this capacity. The purchasers had a real estate agent assisting them but Mr. Haghollahi also received part of the commission for the sale. It was Mr. Haghollahi who discovered the property through a search of MLS.

[11] The purchasers maintain that they wanted to buy the property for the enjoyment of their son because of the potential of the backyard with its large swimming pool and many trees. Mr. Haghollahi states that he and his wife discussed plans to build a new larger cabana, a shed, extend the concrete pad and replace the above-ground hot tub with an in-ground hot tub. He indicated that they may at some point want to put an addition on the home. Mr. Haghollahi states that the house was not the best they had seen and that they overlooked issues with the house because of the expansive backyard.

[12] The offer to purchase the home came after the purchasers viewed it during an open house in February 2020. The purchasers agree that they did not walk around the backyard during this visit or at any time prior to making the offer and signing the Agreement. At no point have the purchasers made any inquiries about the viability of their plans for the backyard. They have not made inquiries of the Town of Newmarket about the possibility of obtaining permits for their plans. They have not sourced out contractors, builders, equipment or inquired about the cost of their plans. At no time did they advise their agent, the vendors agent, their lawyer or anyone about their plans for the backyard.

[13] On June 1, 2020 counsel for the purchasers, having discovered the easements, wrote to counsel for the vendors requesting, amongst other things, a Release of Transfer of both easements. Counsel for the vendors replied on June 9, 2020 indicating that the vendors were not required to remove the easements citing clause 10 (d) of the Agreement.

The Position of the Parties:

[14] It is the position of the purchasers that the easements were not disclosed prior to the signing of the Agreement. They claim they never saw, were provided with nor asked for a copy of the survey. It is the position of the purchasers that the easements affect in a material way their intended use of the property and that had they known about them they would not have made the purchase. The purchasers maintain that due to the easements, they will not be able to erect a new cabana of the size and in the location they want to; they will not be able to plant fruit trees in the area of the easements; they will not be able to put in an in-ground hot tub; they will not be able to extend the existing concrete pad around the pool and not be able to eventually put an addition on the home should they decide to.

[15] It is the position of the vendors that the easements were disclosed to the purchasers. They are described in Schedule B of the Agreement which was also attached to the MLS listing. It is the position of the vendors that as a real estate agent, Mr. Haghollahi would have known the references S/T or “subject to” LT605802, LT623992 described easements on the property.

[16] The real estate agents for the vendors were Leigh and Taylor Sugar. Leigh Sugar provided a sworn affidavit explaining that on February 9, 2020 during the open house and before the signing of the Agreement she both showed and gave a survey of the property to the purchasers and their broker. This transaction took place while Ms. Sugar was showing the backyard to the purchasers and their broker from inside the house and while they were also looking at an aerial photo of the property. Ms. Sugar explained that a request for a survey of the property did not accompany the Offer to Purchase because the purchasers already had one.

[17] Taylor Sugar provided a sworn affidavit indicating that he gave the purchasers more than one feature sheet which contained copies of the survey during the home inspection on February 21, 2020. Mr. Sugar stated that Schedule B to the Agreement that lists the easements was included in the MLS listing.

[18] It is the position of the vendors that there is room to effect the desired changes to the backyard without encroaching on the easements. The vendors indicate that in the nine years they have lived there, representatives from the Town of Newmarket have never visited the property or made any enquiries with respect to the easements. The only encroachment onto the easements are trees that were planted before the vendors moved in. These were planted outside the easement areas but have grown onto the areas over time.

[19] It is the position of the vendors that the easements do not materially affect the use of the property.

The Law:

[20] Where a title search after the signing of an agreement reveals an easement for storm and sanitary sewers, and where the agreement contains the standard form clause 10 (d), the agreement can only be rescinded if the easement materially affects the use of the property.

[21] In Stefanovska v. Kok, [1990] O.J. No. 865, at paras. 29, 30 and 31, Justice Moldaver (as he then was) held that the test to be applied in determining whether there is an impediment to title is whether the easement affects the use and enjoyment of the property in any significant way. Having regard to all of the circumstances, the question to be answered is whether or not the vendor can convey substantially what the purchaser contracted to get. The materiality of the deficiency is to be determined on both an objective and subjective basis. In carrying out its objective assessment, the court will give less weight to the subjective views of the purchaser if the needs alleged are more or less commonplace, not out of the ordinary and of little or no consequential effect to the use and enjoyment of the property as a whole.

[22] In Ridgely v. Nielson at para. 8, Justice Forestell discussed the factors that must be considered in determining this issue. They are:

i. The location of the easement; ii. The size of the easement; iii. The point of access; and iv. The owners’ enjoyment of the property.

[23] In that case, the easement occupied most of the backyard and encompassed 26% of the total area of the property. In determining that the easement materially affected the use of the property, Justice Forestell noted that the specific plans of the purchaser to landscape, install a pool or build a modest addition were to be reasonably expected.

[24] Most recently in Joo v. Tran, 2020 ONSC 806, Justice Mulligan granted summary judgment to vendors for breach of contract by the purchasers where the purchasers refused to close a transaction on a property claiming the vendors failed to show good title by not removing utility easements covered by clause 10 (d) of their agreement. Although the easements encompassed 27% of the property, a survey showing the easements was attached to that agreement.

[25] In Savo v. Moursalien, 2016 ONSC 3326, upheld by the Court of Appeal at 2018 ONCA 981, Justice Charney terminated a transaction and ordered the return of the deposit where the easement covered almost the whole backyard and would potentially require the purchaser to remove a swimming pool and cabana if requested.

[26] In Hallinan v. Coughlin the court determined that due to lack of specific disclosure of the easement in the agreement the purchaser was entitled to rescind it. The easement in that case, however, did not fall under the section 10 (d) exception. The easement allowed access to the backyard by a number of neighbouring and adjacent units for unspecified purposes.

[27] In McClean v. Crotty, 2018 ONSC 6211 at paras. 20 and 21, the court interpreted section 10 to mean that any registered encumbrances must be “specifically provided” and “specifically disclosed” in the agreement unless the encumbrance falls under one of the exceptions [emphasis added].

Analysis:

[28] The easements were described in Schedule B to the Agreement. The title is specified “S/T” meaning “subject to” LT605802 and LT623992. Mr. Haghollahi, a licenced real estate agent, should likely have known that this meant there were easements on the property. Given his assertion that the home was purchased despite its alleged deficiencies because of the “potential of the backyard” one would have thought he would make inquiries about anything that might hinder his plans for the backyard. If it were of such importance to the purchasers to develop the backyard in the way they claim to have intended to, inquiries about any easements to the property and about the meaning of the title description should have been done.

[29] There is conflicting evidence before me about whether or not the purchasers were shown or provided a copy of a survey of the property. The easements are very clearly marked on the survey. Again, if it were of such importance to the purchasers to develop the backyard in the way they claim to have intended to, it is surprising that they did not ask for and/or receive a survey at any point in time.

[30] It is clear that the easements were not specifically disclosed or provided for in the Agreement. I do not suggest that the purchasers were required to make these enquiries and their failure to do precludes them from obtaining relief. However, their actions are inconsistent with their expressed importance of being able to make these changes to the property. This gives rise to an inference that the existence of the easements is not the real motive behind seeking rescission of the Agreement.

[31] It is not necessary for me to determine whether or not a survey depicting the easements was disclosed before the signing of the Agreement as the easements fall within the clause 10 (d) exception. The issue for me to decide is if the easement materially affects the use of the property.

[32] Although the first easement bisects the property, it encompasses only 14.8 percent of a large property. The Town of Newmarket has not attended on the premises in the nine years that the vendors have lived there. The current pool and surrounding structures are large and do not encroach on the easements. On the evidence before me, including the survey, scale diagrams of the property and existing structures and photographs, the potential to build a new cabana, install a fireplace although perhaps not to the scale desired, exists despite the location of the easement. There is already a hot tub in place. The conversion of the hot tub to in-ground is not affected by the easements. There is a large portion of the lawn that is not covered by the easement in which the purchasers could plant many fruit trees.

Conclusion:

[33] Having regard to all of the circumstances, the vendors can convey substantially what the purchasers contracted to get. I find that the vendors have shown good title to the property and that the objection to the requisition of a release of the easement is not valid. Therefore, this application is dismissed.

[34] The respondents may serve and file costs submissions of no more than three pages plus costs outline and any offers to settle within 15 days of the release of these Reasons. The applicants may file reply submissions on the same terms within 10 days thereafter.

Justice J. Cameron Released: July 2, 2020