Strict Compliance with Contractual Terms: How a Technicality can Make or Break Your Real Estate Transaction

Strict Compliance with Contractual Terms: How a Technicality can Make or Break Your Real Estate Transaction

Kurt Pearson
Posted January 13, 2015 Category: Businesses
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In High Tower Homes Corporation v Stevens, 2014 ONCA 911 (released December 18, 2014), the Ontario Court of Appeal reminds us that strict compliance with contractual terms is a best practice during real estate transactions.  In this case, the Vendor mistakenly executed an Agreement of Purchase and Sale (APS) for significantly less than his property’s fair market value, but was able to avoid the contract because the Purchaser had not complied with a technicality in the contract’s notice provisions.

The Facts of the Case

The Vendor was selling two properties (Blue Water and Avondale) together in order to maximize their value.  High Tower (the Purchaser) submitted offers for each property which included a clause stating that the sale of each property was conditional upon the sale of the other.  The parties exchanged multiple offers, one of which the Purchaser had altered such that the sale of Blue Water was not conditional upon the sale of Avondale. The Purchaser did not “black-line” this alteration and did not otherwise draw it to the Vendor’s attention.

Pursuant to the APS, the Purchaser could waive its conditions “by notice in writing to the Seller within the time period stated herein”. Further, any notice was to be “delivered personally or hand delivered to the Address for Service provided in the Acknowledgement below, or where a facsimile number or email address is provided herein, when transmitted electronically to that facsimile number or email address, respectively”. No address for service, fax number, or email address was provided, leaving personal delivery as the only option. Notably, the APS was null and void if the Purchaser did not waive its conditions within the prescribed time period.

The Vendor accepted the Purchaser’s offer, unaware of the Purchaser’s surreptitious change to same. In effect, the Vendor was able to purchase Blue Water without having to purchase Avondale. Within the prescribed time period, the Purchaser’s lawyer gave notice of waiver of its conditions to the Vendor’s lawyer by fax, but no such notice was ever delivered to the Vendor personally.

Upon learning of his mistake and that the Purchaser intended to take advantage of it, the Vendor advised the Purchaser that the contract was at an end because the Purchaser had not given notice of waiver within the prescribed time period in the manner required by the APS. The Purchaser sued for specific performance and, in the alternative, damages for breach of contract.

The Court’s Ruling

On a motion for summary judgment, the judge held that the Purchaser could not enforce the APS since the notice requirements were clearly outlined.  Relying on the Purchaser’s failure to give proper notice, the Vendor was entitled to avoid completing the sale. The motion judge further held that the contract’s “entire agreement” clause precluded the addition of any implied terms to the contrary.  That clause read as follows:

This Agreement including any Schedule attached hereto, shall constitute the entire Agreement between Buyer and Seller. There is no representation, warranty, collateral agreement or condition, which affects this Agreement other than as expressed herein.

On appeal, the Court similarly held that fax delivery to the Vendor’s lawyer was not delivery in accordance with the terms of the APS. The APS included a specific place where the Vendor could have provided a fax number for the purposes of notice, but since he did not, fax delivery was not an option.

The Purchaser argued that there were implied terms as to the manner of giving notice (i.e. delivery by fax to the Vendor’s lawyer).  However the Court of Appeal upheld the motion judge’s ruling that the entire agreement clause precluded such a finding.  This confirms prior jurisprudence holding that no term will be implied that is inconsistent with the contract (G Ford Homes Ltd v Draft Masonry (York) Co (1983), 43 OR (2d) 401 (CA)).

It was also argued by the Purchaser that the Vendor had, in choosing to communicate through his lawyer throughout the transaction, waived compliance with the provision requiring personal notice. The motion judge held that the entire agreement clause defeated any claim of waiver.  Importantly, the Court of Appeal rejects the motion judge’s determination on this point, noting that an entire agreement clause does not necessarily bar a claim in waiver.  In any event, however, the evidence did not establish that the Vendor had waived the notice provisions and the appeal was dismissed.

The boundaries of the entire agreement clause discussed in this case are noteworthy.  The Court of Appeal is clear that the presence of such a clause precludes a party from implying terms inconsistent with the APS and subsequently seeking to rely on them.  In that sense, each party gets precisely what they bargained for—no surprises.  The Court further comments that the new duty of good faith in contractual dealings (see our blog post dated November 19, 2014, for more information) is not an implied term and cannot be excluded by an entire agreement clause; rather, this new duty is a general doctrine of contract law.

The Court of Appeal goes on to note an exception to the effect of an entire agreement clause: waiver.  Even though an APS may contain such a clause, a party can, through their conduct, give up their rights to demand strict adherence to contractual terms. But the threshold for waiver is high: the party waiving compliance must have an unequivocal intention to abandon the right or defect in performance they have waived (Technicore Underground Inc v Toronto (City), 2012 ONCA 597).

Conclusions

This case serves as a lesson that seemingly insignificant technicalities can make or break a real estate transaction.  As such, it is a best practice to be knowledgeable of and strictly comply with the technical provisions of an APS.  This serves to prevent other parties from being able to avoid the contract for technical non-compliance.  On the flip-side, of course, one party’s technical non-compliance may entitle the other to treat the contract at an end, as the Purchaser here did.

It is important to seek legal advice at the beginning of any real estate transaction. Our solicitors working in real estate are experienced with all types of agreements for the purchase and sale of property.  They can help you understand your technical obligations as well as those of the party opposite you.  Early advice can often prevent a deal from falling through later on.

If you suspect that a party has not complied with the provisions of your agreement, technical or otherwise, we are available to assist in resolving your matter.  Our litigation lawyers assist the firm’s clients to resolve contractual complications in real estate and other transactions.

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Kurt Pearson
Posted January 13, 2015 Category: Businesses

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