Implied Representation that Rents Lawful #149

Jan 01, 1990

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By Gerry Neely
B.A., LL.B.

A purchase was made of an Ontario apartment block under an agreement which set out the rent payable for each suite. There was no express representation that the rents were established lawfully. The new owner found himself facing demands by tenants for a rental review and a rollback of rents claimed to be in excess of those permitted under the Ontario tenancy legislation.

The new owner settled these demands by repaying the excessive rent increases and by lowering rents to the amounts lawfully permitted.

Upon the purchaser's action against the vendor for damages, the vendor denied liability because it had made no representation that the rents were lawful. The court however, held that the vendor's statement of the rents payable by the tenant created an implied representation that the rents were lawfully charged, and awarded damages to the purchaser.

In British Columbia this case could apply to a rental increase made within twelve months of the last increase or where there has been no increase, within twelve months of the date the existing rent was established.1

* * *

Another Ontario case contains two examples of bad clause drafting practices by an agent who prepared a number of conditions to be added to the Standard Form Contract used by the local Real Estate Board. Completion of the purchase was conditional upon the purchaser obtaining satisfactory soil tests, site plan approval and a building permit, all within nine months of the date of acceptance of the offer.

Then the agent added a clause that said that if the purchaser was not satisfied with any of "the above conditions within the allowed time frame, then the vendor agrees to give the purchaser month to month extensions". Finally the agent added a clause similar to the one found in the Standard Form Contract in British Columbia, which gave the purchaser the right to waive the conditions "prior to the expiration of the period of time as aforesaid". If the purchaser failed to do so, the contract was void.

The purchaser didn't proceed diligently and when the nine month period ended, the vendor applied for a declaration that the contract was no longer binding because it was ambiguous. The judge interpreted the two clauses concerning time to mean that if the purchaser was unable to remove the conditions within the nine month period, the purchaser had a reasonable period thereafter to remove them. That was a very charitable interpretation of a clause which another court could easily have said was void under the rule against perpetuities because the extension from month to month could mean that the contract would run forever.

However he could not reconcile these two clauses with the final clause added by the agent. Since the date for removal of the conditions could automatically be extended from month to month, there was no date which would fix the "date of the expiration of the period of time as aforesaid". Since it was the purchaser's agent who prepared the agreement, the ambiguity was interpreted against the purchaser.

Apart from the ambiguity created by the clauses, it is bad practice not to set a time limit or establish the mechanism for the time within which the conditions must be fulfilled.2

  1. Congiusti et al. v. Guriel et al., 4 R.P.R. (2d) p. 161.
  2. Mitchell v. Altiton Inc., 4 R.P.R. (2d) p. 288.

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