Real Estate Transactions (Perell) - 2019 PDF

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Very detailed and organized course notes, include notes from class and assigned readings. Important notes for exams are included....

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SHORT SUMMARY

AGREEMENT OF PURCHASE AND SALE OF LAND: CONTRACT TERMS

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Preliminary: Major Contract Remedies at CL and Equity

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Contract Statements: Promises and Representations ■ Major operative statements in a contract:

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Rescission Remedy: Elements

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Fraudulent misrepresentation - elements

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Negligent Misrepresentation

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Distinguishing Conditions: Promissory vs. Contingent

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Waiver of CP and Good Faith Reliance

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True Conditions Precedent – Good Faith, and Sole Discretion Clauses 19 Jurisprudence 20 Turney v Zhilka (1959 SCC) – no unilateral waiver for True CP benefiting both parties 20 Barnett v Harrison (SCC 1975) – no unilateral waiver of True CP even where for sole benefit of 1 party, bc subject to will of 3 rd party 21 Dynamic Transport v OK Detailing – 1:vendor charged with implied duty to act in good faith to complete sale unless express provision;2: 21 Contract Term Classification – CONDITION or WARRANTY?  Jorian Properties v Zellenrath Jurisprudence Jorian Properties v Zellenrath (1984 ONCA) – innocent party may be liable for breach if they repudiate but court subsequently finds the original breach was on warranty, not a condition

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Caveat Emptor, Equitable Conversion, Merger & Closing 22 Caveat Emptor 22 Theory of Equitable Conversion 22 Merger - Fraser Reid v Droumsekas test for when to merge K promises (intention); Redican v Nesbitt policy 22 Synthesis: Caveat Emptor and Merger (AFTER CLOSE) 23 Jurisprudence 24 Fraser-Reid v Droumsekas (SCC 1979) – K promises in APC MAY but don’t necessarily merge upon conveyance. They survive if they weren’t intended to merge. 24 Redicann v Nesbitt (1924 SCC) – policy: business certainty, stability in RET, wealth generation 24 Exculpatory Clauses – disclaimer, limitation of liability, exemption clause – limits liability of party for non-performance of contractual obligations  Tercon Contractors v BC) Test 24 ◊ Rule (Tercon Contractors v BC) – all exculp clauses valid unless P can show overriding policy reason not to (high threshold) 24 Jurisprudence 25 Tercon Contractors v BC (2010 SCC) - Exculpatory clauses/valid unless overriding public policy rationale/ (Fundamental breach dead) 25

AGREEMENT OF PURCHASE AND SALE: TRANSFERRING TITLE

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Digression: Financing Purchase of Real Property

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The Standard Form Agreement of Purchase and Sale 27 Composition 27 1) Identification Clause 27 2) Chattels and Fixtures 27 3) Rental Items (water heaters, tubs, etc) 27 4) Deadline Clause: Acceptance of Offer – forms the contract upon acceptance 27 5) Acceptance Provision 27 6) Closing Date – completion of transaction when purchaser pays and vendor conveys 28 7) Nature of Possession upon Conveyance (vendor to provide vacant, or tenant lease yet to expire) 28 8) Means and Manner of Giving Notice 28 9) Tax – who pays HST on transaction, and way of dealing with capital gains under ITA 28 ■ Title Search Provision (Requisition Clause) - Clause 8 – requisition+determination dates set 28 ■ Title Provisions - Clause 10 – standards for quality of title to be delivered 28 13) Discharging Mortgages 28 15) Insurance 28 18) Statement of Adjustments 29 19) Time of the Essence Clause 29 20) Payment provision – how payment to be made 29 21) Matrimonial Home 29 22) UFFI clause 29 23) Credit Check Clause 29 24) Binding Clause 29 25) Conclusion - signatures 29 Title Provision in the Standard Form Agreement - Clause 10 29 Title Provision Clause: Core Elements 29 1) Good Title (marketable title - can include possessory title) (Holmes v Graham, Keefer v McKay) 29 2) Free from ‘Encumbrances’ 30 ■ Voluntary Reductions of Title – specify encumbrances purchaser agrees to be subject to 30 ■ Compulsory Reductions of Title (Clawbacks) – mandated in Title Provision, thus NOT defects 30 Ancillary: Investigations of Title in Land Registry System and Physical Inspection 30 Ancillary: Rescission/Cancellation Clause – if legit title objection brought BEFORE deadline, purchaser can waive and close with no compensation, or rescind and receive deposit back 30 Ancillary: Deemed Acceptance Provision – if miss requisition deadline (untimely objection), lose right to object and not perform the K. Statute and case law says can only be done AFTER deadline if goes to root of title, is a matter of conveyance, or has latent defect. 31 The Obligation to Convey Good and Marketable Title

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Title Disputes using the Vendors and Purchasers Act (“VPA”) – s. 3 allows summary judgement to resolve i. Adversarial motions (to get vendor to comply with an Act, or to get out of transaction) ii. Non-adversarial (‘sweetheart’) V & P motions (Les Meseurier - ) ◊ Title Insurance: - has reduced the occurrence of V & P motions VPA s. 3 Legislation

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Title Requisitions going to root of title, matters of conveyance, latent defects – Timing Issues and Meanings 32 Title Requisition Analysis – Classification important if title req is untimely, but purchaser wants to escape transaction 33 ◊ POLICY Rationale - FAIRNESS underlies timely requisition exceptions: 33 NOT title matters by default, thus must opt in these Title Requisitions - zoning and building bylaws, work orders, land use regulations 33 Jurisprudence 33 Majak Properties v Bloomberg – untimely requisitions can’t be relied on by purchaser UNLESS one of the exception classes above. Objections to root of title can still be raised by purchaser if past requisition deadline. 33 The Rescission, Annulment, Termination or Cancellation Clause 33 11 Suntract Holdings Ltd v Chassis Service & Hydraulics – Vendor can’t rely on rescission/cancellation clause if he recklessly signs agreement knowing title defect, or if there was no good faith relied upon in signing. Purchaser not obliged to accept

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lesser title than bargained for.

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Latent and Patent Defects of Title and of Quality 34 ◊ Patent Defects - defects apparent to the sense ERGO discoverable upon an adequate investigation; purchaser can’t object to patent defects discovered at closing bc inadequate investigations (purchaser negligence) 34 ◊ Latent Defects - defects which are hidden from the senses ERGO may be discoverable but not immediately - i.e. requires advanced scientific investigations 34 Defects of Quality - A defect in relation to the physical aspects of the land 34 ii. Latent defect of quality ➔ toxic waste on property 34 caveat emptor governs unless there is contractual provision, statutory intervention, or special exceptions to caveat emptor (Tony’s Broadloom v NCM). Onus on purchaser to inspect. 34 Defects of Title - A defect in relation to the metaphysical aspect of land 34  patent defect of title pre-closing: requisitions can be made if material AND before title search period ends 34  patent defect of title post-closing: no requisitions/objections UNLESS error in substantialibus 34  latent defect of title pre-closing: requisitions can be made UNTIL CLOSING (Stiegliz case) 34  latent defect of title post-closing: no requisitions/objections UNLESS error in substantialibus 34 Disclosure Duties: Latent Defects of Land – vendor under no general obligation to disclose physical defects of land (caveat emptor) EXCEPT if vendor knows of defect that is hidden from purchaser 34 ▹ Known dangers (McGrath) 34 ▹ Known to be unfit for habitation (McGrath) 34 ▹ Vendor knows of purchaser’s intended use and vendor fails to disabuse purchaser of suitability of land 34 ▹ Fraud: vendor actively conceals defect (McGrath/Jung v Ip) 34 Jurisprudence 34 The Stieglitz Case – VALID REQUISITION/material or trivial defect - purchaser can rescind BEFORE closing if vendor unable to convey unencumbered property, UNLESS purchaser expressly agrees to accept, does not object timely, or defects are trivial and vendor can get SP. 34 ◊ Patent title defect/timely objection/undischarged easement/material NOT trivial/valid requisition 34 Comparator: Stefanovska v Kok – INVALID REQUISITION/materiality test is objective/requisition invalid if no substantial interference with purchaser’s enjoyment of property (trivial) 35 ◊ Patent title defect/timely objection/undischarged easement/trivial/invalid/requisition 35 LeMesurier v Andrus – INVALID REQ/ purchasers entitled to good, not perfect, title/ Trivial title deficiency can’t terminate, but can get SP with abatement of purchase price, or damages with an abatement/ Vendor+purchaser owe each other duty of good faith to perform K 35 ◊ Patent title defect/timely objection/trivial defect/invalid requisition 35 Tony’s Broadloom & Floor Covering Ltd v NCM Canada Ltd - Absent contractual protection, vendors not obliged to disclose nor purchasers object about a patent OR latent defect in relation to the physical quality of land 35 ◊ Disclosure of defect of Land/patent and latent/caveat emptor governs 35 McGrath v MacLean – no obligation for vendor to disclose patent/latent defects to the quality of land UNLESS vendor concels patent/latent defect, AND/OR vendor knows of latent defect that makes property unfit for habitation or dangerous (but purchaser has to prove that vendor knew of latent defect) 35 ◊ Defect of Land/latent/disclosure duties 35 Jung v Ip (termit problem, fraud) – Vendor liable for fraudulent misrep and had duty to disclose the latent defect, purchasher’s agent liable for fraud/negligent misrep, agent’s employer vicariously liable, vendor’s agent liable for general negligence, vendor’s broker vicariously liable for not being informed of termit problem in area 35 Phinny v Macaulay - Five lessons/Conveyancing Lawyers 35

REAL ESTATE AGENTS

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◊ Vendor’s Real Estate Agent – listing broker signs Listing Agreement detailing commission, property, etc 37 ◊ Purchaser’s Real Estate Agent – selling agent. Can be Dual Agency (same broker as listing agent), or Cooperating Broker. Relationship governed by Buyer Rep Agreement. 37 ◊ Multiple Listing Service (‘MLS’) – notify agents and public of property listings. Commission shared with Cooperating Broker (vs Exclusive Listing – vendor pays less commission but less listing exposure) 37 Statutory Regulation of Real Estate Agents - Real Estate and Business Brokers Act, 2002 37 ◊ Exceptions REBBA s. 5 – bankruptcy trustees, auctioneers, securities traders, financial institutions, lawyers providing

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real estate services. 37 ◊ Right of Remuneration – REBBA s. 9 – can only bring action for unpaid commission if s. 4 or s. 5 37 Legislation 37 ■ REBBA: S. 4(1) ➔ PERSONS PERMITTED TO TRADE IN REAL ESTATE MUST BE REGISTERED 37 ■ REBBA: S. 5 ➔ EXCEPTIONS: UNREGISTERED PERSONS PERMITTED TO TRADE IN REAL ESTATE (banks, securities traders, lawyers dealing with real estate, bankruptcy trustees) 37 ■ REBBA: S. 9 ➔ MUST BE REGISTERED TO HAVE STANDING TO LAUNCH ACTION for COMMISSION 37 ■ REBBA: S. 27 ➔ DUTY TO MAINTAIN AND USE TRUST ACCOUNT 37 ■ REBBA: S. 32(1) ➔ REGISTERED PERSON MUST PROVIDE WRITTEN DISCLOSURE WHERE ACTING FOR ITSELF 38 ■ REBBA: S. 32(2) ➔ CONTENTS OF DISCLOSURE 38 ■ REBBA: S. 33(1) ➔ REGISTRANT SHALL NOT INDUCE PARTY TO BREACH AGREEMENTS 38 ■ REBBA: S. 35 ➔ DUTY NOT TO FURNISH FALSE INFORMATION 38 ■ REBBA: S. 36(1) ➔ COMMISSION AND REMUNERATION: AGREEMENT OR LOCAL INDUSTRY RATES PERCENTAGE OR FIXED AMOUNT BUT NOT BOTH 38 ■ REBBA: S. 37 ➔ PROHIBITION AGAINST FALSE ADVERTISING 38 Code of Ethics: Interpretation 38 ■ O REG 567/05: S. 22 ➔ AGENT MAY REPRESENT ONE CLIENT ONLY UNLESS CONSENT IN WRITING 38 ■ O REG 567/05: S. 23(1) ➔ ENTITLEMENT TO COMMISSION if agreed in writing, or registrant shows property to buyer and introduces seller to discuss acquisition 38 ■ O REG 567/05: S. 23(2) ➔ SUBJECT TO AGREEMENT IN WRITING, NO COMMISSION FROM BUYER IF AWARE OF OTHER UNEXPIRED BUYER REPRESENTATION AGREEMENT 38 Common Law/Equity Regulation of Real Estate Agents – governed by contract and tort principles ▹ Professional duty of care (negligence) ▹ Real estate agents also exposed to liability for i. Negligent OR Fraudulent misrepresentation

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Fiduciary Obligations of Real Estate Agents – high standards of confidentiality, disclosure, loyalty (no conflict of interest) 38 ■ Liability - Agent to work in best interests of the client ergo may be held held liable for breach of fiduciary duty, e.g. failure to disclose pertinent information and obtain highest price (Charete v AH Fitzsimmons) 38 ■ Remedies for breach of fiduciary duty: remedial constructive trust; disgorgement of ill-gotten gains 38 Jurisprudence 38 D’Atri v Chilcot – DUTY OF RE agent = fiduciary to client, thus has duties of confidentiality, full disclosure of all known facts that may affect property value, attempt to get highest price possible (loyalty), and onus on agent to demonstrate these duties have been fulfilled. 38 Fiduciary Duties Governed by Code of Ethics (disclosure of info, dual agency – goes to confidentiality, disclosure, loyalty duty) 39 Relationship between Vendor and Selling (Purchaser’s) Agent – Purchase agent generally do not owe fiduciary duty to vendors, EXCEPT if fiduciary relationship exists per test in Phillips v RD Realty Limited 39 LEADING CASE: Phillips v RD Realty Limited (ON Gen Div 1995 aff’d, ONCA leave to SCC denied) – no fiduciary relationship between purchaser’s agent and vendor categorically exists, agents must be shown to be fiduciariesby showing (1) principal relies on agent, (2) trust and confidence in agent, (3) agent acts on behalf 39 Relationship between Purchaser and Listing (Vendor’s) Agent – absent contract, vendor’s agent has no duties to purchaser (contractual or fiduciary) but MAY have TORTIOUS duties if fraud/neg misrep. 40 Jurisprudence 40 Olsen v Poirier (ONCA 1978) – vendor’s agent liable for neg misrep  purchaser gets damages; vendor exposed to liability (vicarious) and thus get equitable remedy of rescission (can also get damages for misrep) 40 ◊ Negligent misrepresentation/real estate agent liable 40 Bango v Holt (BCSC 1971) – listing and selling agents both have duty of care to purchasers to not be negligent in providing information/checking info accuracy 40 ◊ Negligent misrepresentation: real estate agent liability/fraud: vendor/BC but followed in Ontario 40 Claims against Listing (Vendor’s) Agents and Vendors – both have been found liable (vendor vicariously liable – Knoch Estates for selling agent) for neg misrep (see list) 40

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Relationship between Purchaser and Selling (Purchaser’s) Agent – agent owes duty, liable for fraud/neg misrep, OR negligence, breach of contract (Buyers Agreement), and on ad hoc fiduciary basis. Due to their advisory role, are accountable for not protecting clients against risk (Wong v 407527 Ontario Ltd) 41 Jurisprudence 41 Soulos v Korkontzilas (SCC 1997) – (agent didn’t tell Soulos about what price vendor would accept, got wife to buy, Soulos really wants building despite drop in value)  constructive trust available even where there was no unjust enrichment so long as wrongfully acquired property cannot in good conscience be permitted. Test for Wrongful Acquisition of property. 41 ◊ Fiduciary Duty/Selling Agent/Purchaser/Remedy: constructive trust/new basis: good conscience 41 Calandra v BA Cleaners Ltd (ON Dist Ct 1990) – agent submits own offer that is accepted over client’s reject – if fiduciary relationship exists, agent will be liable if they don’t expressly terminate fiduciary relationship prior to acquiring property sought by client. 41 ◊ Fiduciary Duty/Selling Agent/purchaser 41 Jung v Ip – Termit problem - multiple parties (both agents and vendor, and broker) may be liable in RET if negligence/negligent misrepresentatin/fraudulent misrepresentation 42 Registry Act Problems at CL/Equity – equitable title holder always vulnerable to Bona Fide Purchaser, so Registry Act allows for determining if vendor is the legal title holder 43 Registry Act Solution – gives significant effect to registered instruments that disclose claims to land; imposes serious consequences for NOT registering. ss. 70 to 77 of the Registry Act 43 First Registration and Actual Notice – Constructive notice is NOT SUFFICIENT under RA 43 ■ RA: S. 70(1) ➔ first registration by Bona Fide purchaser/mortgagee prevails against unregistered interests UNLESS ACTUAL NOTICE of existing but unregistered interest 43 ■ RA: S. 71 ➔ first registration by Bona Fide purchaser/mortgagee prevailas against subsequently registered documents UNLESS ACTUAL NOTICE of existing but unregistered interests (PRIORITY) 43 Jurisprudence: Actual Notice and Timing 43 Peebles v Hyslop (1914 ONCA) – actual notice is measured/determined at DATE OF CLOSING, not date of registration 43 Deemed Notice – RA s. 74(1) – registration is deemed to constitute actual notice to all other+subsequent parties 43 Equitable Interests and Registered Instruments – RA s. 72 – equitable interests invalid against registered instruments (but this has been changed by case law) 43 Jurisprudence 44 Edwards v Gilboe (1959 ONCA) – an unregistered equity interest will still take priority over registered interest when holder of registered interest had deemed actual notice of prior equitable interest before acquiring his interest. S. 72 only applies where no actual notice was provided. 44 Constructive and Actual Notice under the Registry Act – constructive invalid basis to vitiate Bona Fide Purchaser under RA, but case law has developed to find actual notice (see groups) 44 i. Cases: ‘In trust’ (Narrow) – purchaser has knowledge that property held ‘in trust’, purchaser has constructive NOT actual knowledge ERGO takes property free and clear of encumbrances AND no duty to investigate Hoback/Walshe 44 ii. Cases: ‘In trust for X’ (Broader) – Law uncertain since conflict between Varotti and Hoback 44 ▹ Varotti held that purchaser has actual knowledge where he knows property held ‘in trust for X’ 44 ▹ Hoback rejected such an interpretation HOWEVER only obiter 44 iii. Cases: Purchaser aware of ‘legal right’ (Broadest) – Actual notice means notice of the existence of the legal right though not necessarily actual notice of the instrument creating the right CIBC v Rockway Holdings Ltd 44 Jurisprudence – what is Actual Notice vs Constructive Notice 44 Hoback Investments v Loblaws – generic reference ‘in trust’ = constructive notice only. Actual notice only if trust document is registered, OR terms of trust communicated to purchaser. 44 Walshe v Citizen’s Bank of Canada – applies ratio in Hoback v Loblaw 44 Varotti v Dobrzynski – went against Hoback, purchaser deemed to have actual notice where property held in deed to be IN TRUST FOR X, aka a named beneficiary 45 CIBC v Rockway Holdings Ltd - Actual notice means notice of the existence of the legal right, though not necessarily actual notice of the instrument creating the right. Contra Hobart/Walshe, there is NO need for the first registrant to have actual knowledge of the terms of the previous agreement. TEST – if registered instrument holder had sufficient knowledge causing reasonable person to make further inquiries about prior instrument. (low test) 45 Overriding Interests and Special Cases when purchaser/mortgagee takes property subject to unregistered interests WITH/WO

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notice – immune to s. 70(1) operation and trumps all other interests 45 Leaseholds less than 7 years – RA s. 70(2) – tenant has absolute right to remain in possession until lease runs out. Meno dat qui no habet – can’t convey unencumbered property if you don’t own it. 45 ■ RA: S. 70(2) ➔ UNREGISTERED LEASES OF LESS THAN 7 YEARS + ACTUAL POSSESSION BY TENANT VALID AGAINST ALL SUBSEQUENT PURCHASERS OR MORTGAGEES IRRESPECTIVE OF ACTUAL NOTICE 45 Legal interests arising by operation of law 45 ◊ Possessory Title (Adverse Possession) – satisfaction of statutory time limits = unregistered possessory title OK 45 ◊ Possessory/Necessary Easements – nothing to register since nothing conveyed; just a right of use arising via adverse possession or necessity 45 Zoning – not a title matter, impact of zoni...