2023 ONSC 657

COURT FILE NO.: CV-17-00000440-0000 DATE: 20230125

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Kabilan Kanathian, Plaintiff AND: Hastings Local Housing Corporation, Royal LePage Proalliance Team Weir, Brokerage, and David Weir, Defendants

BEFORE: The Honourable Justice N. Champagne

COUNSEL: John Martin, for the Plaintiff John Mastorakos and Michael Swindley, for the Defendants

HEARD: October 14, 2022

ENDORSEMENT

[1] At the heart of this summary judgment motion is an agreement of purchase and sale of real property that failed to close. The plaintiff discontinued his action against all defendants except Hastings Local Housing Corporation (HLHC). The plaintiff was the purchaser of certain real property owned by HLHC and seeks an order for specific performance or in the alternative, damages of $1,000,000.00.

Undisputed Facts

[2] The history of the subject properties is important.

[3] On January 1, 2001, as part of the transfer of housing responsibility from the provincial government to municipalities, HLHC became the owner of multiple parcels of real property, including the two properties at issue in this action: 15 Union Street and 25 Union Street in Belleville, Ontario.

[4] HLHC used the property to provide affordable housing for approximately 17 years.

[5] In the winter of 2017, 15 Union Street and 25 Union Street were listed for sale on MLS. The plaintiff owned property abutting the two properties from the rear. On February 23, 2017, the plaintiff agreed to purchase the two properties from HLHC: each for $159,000.00. He executed one Agreement of Purchase and Sale for each property (collectively called APS). The parties signed a standard APS which included the following clauses:

10. If within the specified time referred to in paragraph 8 any valid objection to title...is made in writing to the Seller in which Seller is unable or unwilling to remove, remedy or satisfy ...and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end...and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages….

11. This Agreement shall be effective to create an interest in the property only if the Seller complies with the subdivision control provisions of the Planning Act, R.S.O. 1990, c. P.13 and Seller covenants to proceed diligently at Seller’s expense to obtain any necessary consent [meaning severance pursuant to the Planning Act, R.S.O. 1990, c. P.13] by completion.

[6] The closing date for the sale was set for April 28, 2017.

[7] On April 13, 2017, the plaintiff’s real estate solicitor sent the seller’s real estate solicitor a requisition letter which noted that title to 15 Union Street and 25 Union Street had merged with each other and with title to abutting lands. The requisition letter included a request for, among other things, the completion of Planning Act Statements.

[8] On April 27, 2017, the solicitor for the plaintiff wrote to the seller’s solicitor acknowledging that the seller’s solicitor informed him that HLHC would have to obtain severance of the properties in order to proceed with the sale. The plaintiff’s solicitor stated that he expected HLHC to apply for severance and his client was prepared to postpone the closing date until 15 days after severance was obtained.

[9] The following day, April 28, 2017, HLHC’s solicitor informed the plaintiff’s solicitor that his client was unable to satisfy the requisition by the closing date and HLHC took the position that the Agreement of Purchase and Sale was therefore at an end. HLHC refunded the plaintiff’s deposit.

[10] It is undisputed that HLHC took no steps to apply for severance. Its evidence is that to do so would have been too time-consuming and expensive without a guaranteed outcome.

[11] In order to salvage the deals, the plaintiff offered to apply for and pay for the severance himself. This offer was declined by the seller. Alternatively, the plaintiff offered to purchase the entire block of eight properties with a commitment to honour the existing rented tenancies.

[12] The plaintiff claims that because the APS did not close, he was unable to close three other purchases in his own name and was forced to assign them to a third party. The plaintiff did not provide evidence in support of his claim for damages.

Issues

[13] Is the matter appropriate for summary judgment? Both parties are of the view that the facts are essentially uncontested and the focus of their argument is on the law. Both agree that proceeding by way of summary judgment is appropriate.

[14] If the matter is found to be appropriate for summary judgment, what (if any), obligation did HLHC have to apply for severance?

[15] Is the application for severance a true condition precedent? If so, how does it affect disposition?

[16] What, if any, remedy is appropriate?

Position of the Parties

Plaintiff’s Position

[17] The plaintiff argues that HLHC had a contractual obligation and a duty to act in good faith and to apply for severance under the terms of the APS: see 1954294 Ontario Ltd. v. Gracegreen Real Estate Development Ltd., 2017 ONSC 6369, 80 C.L.R. (4th) 297; Coghlan v. Unique Real Estate Holdings Inc., 2016 ONSC 6420; Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072.

[18] The plaintiff argues that he is entitled to specific performance because the properties he agreed to purchase were unique as they abutted his property from the rear.

Defendant’s Position

[19] The defendant’s position is that the Planning Act prohibits a person from executing an APS with respect to lands while owning abutting lands, unless the subject property has been severed from the abutting lands. It argues that such an APS is a nullity unless the APS is conditional upon severance being obtained.

[20] The defendant contends that if clause 15 of the APS is not a condition precedent, then the APS is illegal because it does not comply with the Planning Act and is therefore a nullity or “void ab initio”: Still v. Minister of National Revenue, [1998] 1 F.C. 549 (F.C.A.).

[21] The defendant argues that if clause 15 is a true condition precedent, which is effectively in the hands of a third party and uncertain, neither party can insist on specific performance: see THMR Development Inc. v. 1440254 Ontario Inc., 2018 ONCA 954, 85 B.L.R. (5th) 175.

[22] The defendant maintains that it elected not to obtain severance of the subject lands due to the time and expense and the lack of guarantee as to the outcome. It argues that as the condition was not met, the plaintiff is not entitled to specific performance. Even if he was, the defendant argues that the properties were not unique and specific performance would not be an appropriate remedy.

[23] The defendant argues that no damages can be awarded because the plaintiff’s materials contain no evidence as to that claim.

Law and Analysis

Summary Judgment

[24] Rule 20.04(2) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, requires a court to grant summary judgment where it is satisfied there is no genuine issue for trial. In determining whether there is a genuine issue for trial the court may weigh evidence, evaluate credibility, and draw reasonable inferences from the evidence.

[25] Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 is the leading case on summary judgment and provides, at para. 49, that

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[26] Further, the Supreme Court in Hryniak states, at para. 57, that

On a summary judgment motion, the evidence need not be equivalent to that at trial, but must be such that the judge is confident that she can fairly resolve the dispute.

[27] On a motion for summary judgment, each party must put their best foot forward.

[28] I have no difficulty concluding this matter is appropriate for summary judgment on the issue of specific performance. The facts are not in dispute. I am able to apply the principles set out in the Rules and in the caselaw to make the necessary findings of fact to which I can apply the law. Summary judgment on the issue is by far a more expeditious means than a trial.

Clause 10 of the APS

[29] Clause 10 of the Ontario Real Estate Association (OREA) standard form APS is a standard clause which requires a seller to convey title to a property “good and free from all registered restrictions, charges, liens and encumbrances”. The words “and which the Seller is unable or unwilling to remove” have been considered by the courts many times. The courts have consistently concluded that a seller is required to exercise his rights reasonably and in good faith, not capriciously and arbitrarily: see Gracegreen Real Estate Development; Hurley v. Roy (1921), 50 O.L.R. 281 (C.A.). The Supreme Court of Canada in Mason v. Freedman, [1958] S.C.R. 483 considered the meaning of the phrase “unable or unwilling” in an agreement of purchase and sale and concluded that a seller “cannot take advantage of his own default and use the clause to escape his obligation”. I accept and apply these principles to this decision.

Clause 15 of the APS

[30] Clause 15 is also a standard clause in the OREA standard form APS. It requires compliance with the Planning Act. Counsel did not provide me with caselaw which considered the clause in a residential real estate transaction, but similarly worded clauses have been considered in commercial transactions.

[31] The Supreme Court of Canada considered the requirement for similar approval in Dynamic Transport. In that case, the vendor failed to close a real estate transaction which led the purchaser to bring an action for specific performance. In its defence, the vendor relied on the purported uncertainty of the land description and on the agreement’s silence as to which party would be responsible for obtaining approval under the Alberta Planning Act, R.S.A. 1970, c. 276. At p. 1084 of Dynamic Transport, Dickson J. noted that s. 19(1) of the Planning Act stated that “A person who proposes to carry out a division of land shall apply for approval of the proposed subdivision in the manner prescribed by the Subdivision and Transfer Regulations” and reasoned that “In a purchase and sale situation, the ‘person who proposes to carry out a subdivision of land’ is the intended vendor. In other words, Dickson J. concluded that the vendor was responsible for applying for the subdivision and further that the Planning Act prerequisite became an implied term of the agreement. He went on to say the following, at pp. 1082-1083:

The existence of a condition precedent does not preclude the possibility of some provisions of a contract being operative before the condition is fulfilled, as for example, a provision obligating one party to take steps to bring about the event constituting the condition precedent: see, for example, the recent decision of the Appellate Division of the Alberta Supreme Court in Steiner v. E.H.D. Investments Ltd.

[32] Dickson J. concluded, at p. 1086:

In my opinion, the appellant is entitled to a declaration that the contract between the parties mentioned above is a binding contract in accordance with its terms, including the implied term that the respondent will seek subdivision approval. The appellant is further entitled to an order that the respondent make and pursue a bona fide application as may be necessary to obtain registration of the approved plan of subdivision, including registration of the approved plan with the Registrar of the North Alberta Land Registration District if approval is obtained. Such application shall be at the expense of the respondent and shall be made within sixty days following delivery of this judgment, or such extended period as may be ordered by a judge of the Trial Division of the Supreme Court of Alberta in Chambers.

[33] In the John E. Dodge (2001), 56 O.R. (3d) 341 (S.C.) decision the transaction was commercial, however, the clause was similarly worded to the one in the present case stating:

This Agreement shall be effective to create an interest in the property only if the Vendor complies with the subdivision control provisions of the Planning Act by completion and Vendor covenants to proceed diligently at his expense to obtain any necessary consent by completion.

[34] The trial judge noted that the parties had every opportunity to amend the standard Planning Act provision but never did so. The trial judge found that the vendor agreed to comply with the Planning Act at its expense and to proceed diligently to obtain any necessary consent by completion. The vendor had taken the step of applying to the Committee of Adjustments to obtain severance in compliance with the Planning Act which was granted by the Committee subject to certain conditions which the vendor was unprepared to abide by. The vendor therefore terminated the agreement. The trial judge found that the vendor breached the agreement of purchase and sale when it refused to comply with the conditions of severance. She granted the purchaser an order for specific performance because the land in question was unique. The Ontario Court of Appeal upheld the trial judge’s reasoning in this regard: John E. Dodge Holdings Ltd. v. 805062 Ontario Ltd., 63 O.R. (3d) 304, leave to appeal refused, [2003] S.C.C.A. No. 145.

[35] I accept and apply the reasoning in Dynamic Transport and John E. Dodge. I see no reason for it not to apply to a residential transaction. I conclude that HLHC was required to apply for severance as a term of the Agreement of Purchase and Sale and its failure to do so amounted to a breach of contract. HLHC refused to extend the closing date and made no attempt to apply for severance. In my view, these actions breached the vendor’s duty under clause 10 of the agreement to exercise his rights reasonably and in good faith rather than capriciously and arbitrarily. They also breach the vendor’s covenant as set out in clause 15. I do not accept HLHC’s claim that it was unaware that the titles in question had merged and I reject its reasons for failing to comply with its obligation. The lands in question were conveyed to HLHC by the province in 2001 as a block. HLHC was represented by a real agent when it listed the properties and it was represented by counsel for the sale. If HLHC did not know about the merged title, I find it ought to have known. It agreed to the terms of the agreement which included its obligation to apply for severance. In so agreeing, HLHC knew that there would be a cost (although it provided no evidence as to the estimate of such costs), and it knew the outcome of such an application would be uncertain. HLHC could simply have struck out that term of the agreement, but it did not do so.

[36] I agree with HLHC’s argument that neither party can insist on specific performance until a condition precedent is satisfied. In this case, that means that without severance, I cannot order the exchange of funds and transfer of the property. That does not mean I cannot order compliance with terms of the agreement.

[37] HLHC’s failure to apply for severance amounted to a breach of contract. In my view, while I cannot order the sale and transfer of the property in question, I can order HLHC to comply with the terms of the agreement, including the condition set out in clause 15, just as Dickson J. did in Dynamic Transport.

[38] In all the circumstances, I declare the contract between the plaintiff and HLHC to be binding including the term set out in clause 15. I therefore order HLHC to pursue a bona fide application for severance as required by clause 15 within 60 days.

[39] If the parties are unable to agree on costs, they may submit submissions, limited to three pages, together with their respective bills of costs within 30 days.

Date: January 25, 2023