Dec 01, 1992

Purchase of an Unsubdivided Lot Vendor's Obligation to Co-operate #195


By Gerry Neely

The purchase of part of a lot, which must be subdivided from the parent property before title can be given to the purchaser, either requires a ten page detailed contract of the rights and responsibilities of the parties, or a one page standard form of contract with two or three small clauses and a large measure of goodwill. Both types of contracts seem to provide equal opportunities for arguments about uncertainty, which may explain why people decide to forego the legal expenses involved in drawing the ten page contract and take their chances on their goodwill surviving the vicissitudes of the process leading to the registration of the survey plan.

One such contract was subject only to the purchaser obtaining binding contracts with adjoining owners for the purchase of their properties. The only obligation the clauses added to the printed form placed upon the vendor was to allow access to enable the purchaser to have the property surveyed. There was no reference to the fact that road access would have to be provided for the remainder of the lot through one of the properties to be purchased by the purchaser. Without this access, subdivision would be impossible.

The purchaser waived the conditional clause, but within a few days of closing the vendor refused to agree to a one day extension requested by the purchaser in order to have all documents available for registration. Relying upon paragraph two of the standard form contract, the vendor terminated the contract and the purchaser then sued for specific performance.

A vendor in these circumstances assumes that his role in creating a subdivision is passive. It is the purchaser's responsibility to deal with the mechanics of meeting the subdivision requirements and of having the documents and money available on the closing date. Until this case was decided, all a vendor expected to do was to show up, sign and collect the cheque.

This case says a vendor may have much more of an obligation than that, because three of the five appeal judges held that the vendor, by accepting the offer, had agreed to participate jointly with the purchaser in the subdivision of the vendor's property.

The reasoning behind this majority decision is that the contract imposes an obligation upon the vendor to deliver title to the purchaser. The vendor cannot do this unless the subdivision takes place, and the subdivision cannot occur unless the purchaser obtains the property which would provide road access to the remaining part of the vendor's lot. One judge stated that their responsibilities were interrelated, and that the obligation to subdivide remained the obligation of each of them.

Having reached this conclusion, the majority of the Court of Appeal held that it would be inequitable to allow the vendor to insist upon completion on the due date, while the vendor's obligation to co-operate in obtaining the subdivision remained outstanding, and ordered specific performance by the vendor.

The two remaining appeal court judges disagreed, saying that the only obligation of the vendor was to sign whatever documents were delivered to him and return them to the purchaser's solicitor in good time. Their opinion was that the vendor was entitled to terminate the contract when the purchaser was unable to perform his obligations by the new closing date.

So where does this leave vendors who are faced with a proposed subdivision? One judge said that the vendor might still have a remedy by giving notice to complete within a stated reasonable period of time, failing which the transaction would be at an end. This judge was not prepared to say that that remedy was absolute because of the vendor's continuing obligation to assist the purchaser to complete the subdivision. That does not help a vendor who wants certainty, and the decision may put pressure upon a vendor to agree to an extension to avoid the cost of a lawsuit.

The majority decision was influenced by the fact that only one more day was required to complete, and their conclusion may be limited by the particular facts of the case. Other judges, on other facts, may prefer to apply the reasoning of the dissenting appeal court judges. It must be admitted that the decision has advantages for purchasers and, for that matter, for licensees whose commissions depend upon a completed sale.1

 1.Salama Enterprises (1988) Inc. v. Grewal, 90 D.L.R. (4th) 146.

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