Enforce Your Rights, or Lose Them #542
CATEGORY: Legally Speaking
TAGS: Contract of Purchase and Sale Enforcing Rights Innocent Party Repudiation
Anyone who has been involved in a transaction for a property under construction is likely familiar with the potential for delays of completion. While developers don't often fail to deliver, it can happen. What happens when significant delays do occur? Can a developer be in default under the contract? What about the innocent party in a transaction: can they fail to deliver on their obligations after the other party has already defaulted? While the answer isn't always simple, it comes down to enforcing your rights, or losing them.
A recent decision out of the Ontario Court of Appeal has confirmed that an innocent party to a real estate transaction must enforce their rights when the defaulting party repudiates a real estate contract, otherwise they can lose their right to terminate the contract or seek other remedies.
Repudiation of a contract occurs when a party defaults on their obligation(s) under a contract and demonstrates "an intimation of an intention to abandon and altogether refuse performance of a contract"[i]. Some examples of repudiation in real estate contracts are as follows:
- failure of the buyer to pay the deposit when due and payable;
- failure of a buyer to complete a purchase on the completion date;
- failure of a seller to transfer a property to a buyer on the completion date; or
- the buyer (or its representative) communicating to the seller that they cannot, or will not, complete the purchase of the property.
Once a contract has been repudiated, the innocent party has two options:
- accept the repudiation, and seek remedies against the defaulting party; or
- elect not to terminate, and the contract remains in force.
Under the second option both parties are obligated to continue performing their obligations under the contract.
In Ching v. Pier 27 Toronto Inc.[ii] the Ontario Court of Appeal denied the buyer's request for the return of their deposit, even though the seller was in default under the contract. The reason the court denied their request was because the buyers had failed to accept the repudiation by the seller and then the buyer ultimately failed to perform their obligations under the contract. The facts of the case are as follows:
- The buyers, Mr. and Ms. Ching, entered into a presale contract in 2008 to purchase a condo that was under construction
- The Ching's paid deposits totalling $214,238.85
- The original completion date was set to occur in 2010
- The developer extended the completion date eight times between 2010 and 2014
- The presale contract only allowed the developer to extend the completion date by 24 months from the original completion date, meaning the developer was in default.
- The buyers never actively enforced their rights with respect to the contract every time the developer extended the completion date, meaning they acted is if the contract was still in effect
- In August of 2014 the buyers finally requested the termination of the contract due to the developer's numerous unpermitted extensions
- The developer stated they did not have the right to terminate the contract
- The buyers did not close the transaction nor take possession of the property at closing because their mortgage approval had expired and they believed they should be entitled to the return of their deposit due to the developer's ongoing default in extending the completion date.
The trial judge in this case decided that while in fact the developer was in default under the contract, the Ching's had failed to "'clearly and unequivocally' accept the repudiation to terminate the Agreement"[iii] when the developer was in default, and they were therefore bound to also perform their obligation under the contract to complete the purchase.
The trial judge treated the presale contract as subsisting because after each event of default by the developer (ie. each unpermitted extension), the buyers acted in a way that affirmed the contract was subsisting, these actions included requesting the ability to assign the contract and doing "nothing for too long"[i]. Based on this, the trial judge denied the return of the buyer's deposit. The Court of Appeal upheld the trial judge's decision and refused the Ching's request for the appeal of the original judgement and to have their deposit returned.
It is important for Realtors to advise clients to seek independent legal advice if one party to a contract is in default. This advice should be sought as soon as they become aware of the default as simple actions may be inferred that the innocent party elected not to terminate the contract or seek other remedies.
[i] Freeth v. Burr, (1874) 9 L.R.C.P 208, from Donald M McRae, Repudiation of Contracts in Canadian Law, 1978 56-2 Canadian Bar Review 233, 1978 CanLIIDocs 22
[ii]Ching v. Pier 27 Toronto Inc., 2021 ONCA 551 (CanLII)
[iii] See paragraph 27 of Ching v. Pier 27 Toronto Inc., 2021 ONCA 551 (CanLII)
[iiii] See paragraph 49 of Ching v. Pier 27 Toronto Inc., 2021 ONCA 551 (CanLII)
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